[Funding] Samra Midas Acquires Auto Parts Company 'Jiko' and Borrows Funds for Capital Increase

[Asia Economy Reporter Lim Jeong-su] Samra Midas, a subsidiary of SM Group, secured most of the funds for Zico's third-party allotment capital increase through borrowing when acquiring the auto parts company Zico, which entered court receivership last year.

According to the investment banking (IB) industry on the 7th, Samra Midas recently borrowed 21 billion KRW under the lead management of DB Financial Investment. The loan maturity is three months, with the possibility of extension upon mutual agreement between the borrower and lender. Although the loan is to be repaid in a lump sum at maturity, early repayment is also possible.

Samra Midas plans to use the procured funds to pay the remaining balance for the acquisition of Zico. Having agreed to acquire Zico, which entered court receivership last year, for 23.6 billion KRW, they have already paid 2.36 billion KRW as a deposit, which is 10% of the total acquisition price. The remaining balance is 21.2 billion KRW.

Samra Midas will finalize the acquisition of Zico by investing the borrowed funds through a third-party allotment capital increase and receiving 47.2 million new shares. It is expected to seek synergies with previously acquired auto parts companies such as SM Hwajin (formerly Hwajin).

Zico mainly manufactures auto engine and transmission parts and supplies them to Hyundai Motor and Kia Motors. Recently, due to a decline in internal combustion engine vehicle production and the impact of COVID-19, sales have decreased and profitability has suffered, causing management difficulties.

Samra Midas is an SM Group affiliate wholly owned by Chairman Woo Oh-hyun. It acquired Hwajin, an auto parts company that entered court receivership, last year and has expanded its auto parts affiliates by acquiring Zico this year. Its affiliates include shipping companies such as SM Shipping and Daehan Shipping, construction companies such as Woobang Construction, Samhwan Enterprise, and Gyeongnam Enterprise, as well as Namseon Aluminum, Vexcel, Gyeongnam Textile, and TK Chemical.

An IB industry official said, "SM Group continues its expansion strategy supported by strong performance in its core construction and shipping sectors," adding, "While acquiring distressed companies under court receivership at low prices can yield high M&A efficiency if successful, the debt burden is also considerable."