① Bubang-affiliated Techros Expands Waste-to-Energy Business

Scheduled to Participate as Construction and Operation Company in Yeonggwang Cogeneration Power Plant Facility

[Asia Economy Reporter Lim Jeong-su] Techross, an affiliate of Bubang Group, is expanding its waste treatment and power generation business. Yeonggwang Combined Heat and Power Plant plans to participate as the EPC (Engineering, Procurement, and Construction) and O&M (Operation and Maintenance) company in building power generation facilities to boost its performance. Last year, Bubang Group restructured its governance with Techross at the top and is expanding waste and water treatment-related businesses centered on Techross.

◆ Construction of Yeonggwang Solid Waste Power Generation Facility... Recruiting 99 Billion KRW Investors

According to the investment banking (IB) industry on the 6th, Yeonggwang Combined Heat and Power Plant will raise 99 billion KRW from a private equity fund (PEF) managed by Shinhan BNP Paribas Asset Management. The funds will be used to build a solid recovered fuel (SRF) treatment and power generation facility. Yeonggwang Combined Heat and Power Plant is a project company established to construct and operate a waste power plant. Currently, CEO Kim Hyun-nam and LBP are shareholders. The company is promoting the construction of a waste power plant with an annual power generation capacity of 64,138 MWh near the Hanbit Nuclear Power Plant in Yeonggwang-gun, Jeollanam-do.

Shinhan BNP Asset Management plans to mobilize investors from affiliated financial companies and others to provide Yeonggwang Combined Heat and Power Plant with 92 billion KRW in senior loans and 2.5 billion KRW in equity investment. Upon completion of funding, Shinhan BNP's equity stake will be 25%. The senior loan has a maturity of 5 years with an interest rate of about 7.2%. The loan is structured with a grace period of 2 years and 9 months, followed by installment repayments of principal and interest during the remaining term.

At loan maturity, refinancing will be conducted to repay principal and interest. If excess profits occur, the loan principal and interest will be repaid first using a cash sweep method to accelerate investors' capital recovery schedules. To enhance repayment stability, senior collateral was established on deposits, stocks, insurance, equipment and land, and business contracts held by Yeonggwang Combined Heat and Power Plant.

Financial investors (FIs) holding equity plan to exit by selling at a price exceeding 10 times the enterprise value to EBITDA (EV/EBITDA). If FIs sell their shares at an EV/EBITDA multiple of 10 to 12 times, the annual return after deducting management fees and other costs is expected to reach 10% to 11.3%.

◆ Techross Affiliates Acquired from LG Group to Handle Construction and Operation

The construction and operation of the power plant will be handled by Techross Water & Energy (formerly Hi&Tech) and Techross Environmental Services (formerly LG Hitachi Water Solutions), both subsidiaries of Techross. Last year, Techross acquired shares of the two companies from LG Group through its investment subsidiary Techross Vision Investment.

Techross Water & Energy is responsible for turnkey construction and resolving environmental complaints. If it fails to fulfill these obligations, it will compensate investors with principal and interest on the outstanding loan balance plus 10% compound interest on the FI equity. Techross Environmental Services, which operates the power plant, guarantees a certain level of sales. If the annual waste intake falls below 82,000 tons, it will compensate for the shortfall in waste sales revenue, and if 90% of the guaranteed power generation is not achieved, it will pay for the shortfall in power sales revenue. Both companies are jointly responsible for construction and operation.

Favorable conditions for FI capital recovery were included in the shareholders' agreement. Strategic investors (SIs) are prohibited from transferring shares until FIs have fully recovered their invested capital. A drag-along right is included, allowing other investors to require a co-sale of shares if a particular investor sells their shares. Additionally, if events causing loss of benefit of time occur at Yeonggwang Combined Heat and Power Plant, FIs can request a paid-in capital reduction on their shares.

Currently, Shinhan Bank (30 billion KRW), Shinhan Capital (10 billion KRW), NongHyup Property & Casualty Insurance (30 billion KRW), and NH Investment & Securities (12 billion KRW) are reportedly reviewing investments. An industry insider said, "Yeonggwang Combined Heat and Power Plant is expected to secure stable sales channels such as LG affiliates, and with various repayment stability measures, there should be no difficulty in raising funds."