(News Focus) M&A wave set to sweep S. Korean corporate sector

By Park Sang-soo
SEOUL, July 8 (Yonhap) -- South Korea's merger and acquisition (M&A) market may
witness another boom down the road as a slew of companies and financial investors
with ample cash are targeting assets up for sale and the government is set to
revamp ailing firms, industry experts say.
High-profile deals currently under way include the sales of Daewoo Engineering &
Construction Co., the country's top builder, and Hynix Semiconductor Inc., the
world's second-largest maker of computer memory chips. The deals are estimated at
be over 3 trillion won (US$2.35 billion) each.
Nortel Networks Corp., the U.S. telephone equipment maker, is also trying to sell
its majority stake in a joint venture with LG Electronics Co., estimated at
around 1 trillion won. Dongbu Group is seeking to sell its steel-making unit,
Dongbu Metal Co. for around 1 trillion won.
There are also second-tier M&A deals whose transaction values are estimated at
under 1 trillion won. The deals include the sale of Kumho Life Insurance Co.
Experts estimate the combined value of assets up for grabs at 10 trillion won.
"I cautiously expect the M&A market to be brisk from the second half and some
major investors are already searching for targets," said Choe Woo-suk, an
official at Woori Bank's investment team. "Once they are confident about the
economy, potential buyers will scramble to the market."
In the past few years, South Korea's M&A market has grown sharply as companies
have become aggressive buyers seeking to expand and diversify their businesses.
Strategic investors such as major conglomerates had led the market for
high-profile deals.
But hit by the unprecedented financial crisis last year, M&A volume in Asia's
fourth-largest economy dropped. South Korea's M&A volume reached $41.7 billion
last year, compared with $64.5 billion a year ago, as the global financial crisis
let investors face problem in financing deals, according to the U.S.-based
Thomson Reuters, a financial information service provider.
In the first six months of the year, M&A volume also dropped 39 percent from a
year earlier to $16.6 billion, according to Thomson Reuters.
Experts say major conglomerates armed with ample cash and a pool of local
investment and pension funds are poised to snatch up high-profile firms.
Also, many mid-sized manufacturing companies, on the back of strong cash flow,
want to transform their business portfolios and find future growth engines
through M&As, according to experts.
"For some companies which have lots of cash, the current market may present a
good opportunity to take over rivals or change their business lines," said an
official at the M&A team of Woori Investment & Securities.
South Korea's 10 largest business groups held 46.7 trillion won in assets
convertible to cash as of end-March, up 1.72 trillion won or 3.82 percent from
the end of last year, according to the Korea Exchange.
Local private equity funds (PEFs) estimated to be worth 4 trillion won are also
set to be launched this year aimed at buying distressed assets and selling them
after turning them around, according to experts.
"Home-grown private equity funds and pension funds are also getting active as
financial investors," said Kim Yong-dae, the head of Hana Daetoo Securities'
syndicated team. He said local banks and pension funds are scurrying to set up
such funds. "The PEFs may lead the M&A market, rather than companies," he said.
Experts say more assets will be up for grabs down the road as the South Korean
government is pressing some local business groups to improve their balance sheets
by selling assets. The government is also planning to launch a 25-trillion won
fund to buy distressed loans and support the corporate revamp efforts.
Some state-run lenders and creditors are mulling selling their stakes in several
companies such as Hyundai Engineering & Construction Co. and Daewoo Shipbuilding
& Marine Engineering Co., which were bailed out in the wake of the financial
crisis that hit the country in late 1997.
Adding to this, the government is seeking to privatize some public companies and
to allow companies to own banks.
However, some experts predicted that any mega deals remain unlikely for the
moment as the current market is "a buyer's market" and many investors are still
sitting tight.
"There are huge gaps over the prices, and investors are still cautious in
foraying into the market," said an official at Kookmin Bank. "It may take time to
see a meaningful recovery in the local M&A market."
sam@yna.co.kr
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