[Analysis of Top 3 Private Equity Funds]③IMM PE: Securing Dollars through Overseas Sales

Airfirst Pursues Sale with 2.5x Increased Corporate Value
Able C&C, Operator of 'Missha', Also Seeks Overseas Buyers

Editor's NoteDue to concerns about domestic and international economic downturns, major players in the domestic capital market have focused on risk management rather than 'big deals' throughout this year. Although the market contracted this year, there is a forecast that if the crisis is well overcome next year, opportunities will also arise. As Asia Economy wraps up this year and prepares for the new year, it analyzed the investment portfolios of major domestic private equity funds from the perspectives of Strength, Weakness, Opportunities, and Threats. We examined what risk factors they face, what measures they have to overcome weaknesses, and what new growth engines they possess.

[Asia Economy Reporter Park Soyeon] IMM Private Equity (IMM PE) was established in 2006, during the early days of private equity investment in Korea, and has over 15 years of experience. It currently manages assets exceeding 7 trillion KRW. The company aims to grow its assets to 10 trillion KRW by 2025. Since its founding, IMM PE has maintained an average annual growth rate of 31% and is strong in mid-to-large buy-out deals. It operates substantial portfolios including Airfirst, Shinhan Financial Group, Hana Tour, Hanssem, and Hyundai LNG Shipping.

▶Strength=Airfirst, owned by IMM PE, supplies industrial gases to major domestic companies such as Samsung Electronics, SK Hynix, and LG Chem. An investment memorandum (IM) will be sent to potential buyers in January next year. IMM PE plans to sell 30% of its 100% stake. In 2019, IMM PE acquired the entire stake and management rights of Airfirst, investing a total of 1.4 trillion KRW. Internally, the corporate value of Airfirst is estimated to have increased by about 2.5 times. The core driver of this value increase is the expected gas supply contract for Samsung Electronics' semiconductor factories. If large-scale new orders are secured from the Samsung Pyeongtaek factory under construction and the U.S. factory, earnings could increase significantly. However, IMM is pursuing overseas sales of Airfirst due to the unfavorable domestic capital market conditions. The strategy is to secure approximately 1 trillion KRW in dollar funds through a minority stake sale to assist investor exit.

▶Weakness=IMM PE and Lotte Group acquired a 27.7% stake in Hanssem, Korea's No.1 home interior company, last year for about 1.45 trillion KRW. Since then, the real estate market downturn caused a sharp decline in housing transactions, severely impacting the interior business. High interest rates and rising raw material prices worsened performance and led to a stock price decline. At the time of acquisition, IMM borrowed about 821 billion KRW from 30 major lenders including Shinhan Bank. The loan-to-value ratio (LTV) was set at a maximum of 85%, but six months after the acquisition, the stock price dropped significantly, exceeding the limit. Recently, IMM reportedly reached an agreement with the lenders to waive the LTV test until June 2024. Instead, IMM PE and Lotte Group agreed to inject an additional 100 billion KRW in funds at a 4:3 ratio.

▶Opportunities=Hyundai LNG Shipping, engaged in LNG transportation, is increasing in value amid the paradigm shift in the global energy market. Hyundai LNG Shipping has strengthened orders to maintain its No.1 position in the domestic market and has risen to become a top 10 global specialized liquefied gas carrier. This year, the Russia-Ukraine war triggered a global energy crisis, increasing the share of LNG exports and imports via maritime transport. Additionally, as the importance of ESG (Environmental, Social, and Governance) management grows to shift the energy system from fossil fuels to renewable energy, corporate LNG demand continues to rise. With Hyundai LNG Shipping's corporate value increasing, there is a high possibility of recovering investment through a sale in the short term.

▶Threats=Able C&C, which operates the brand shop Missha, has started a sale process after failing to extend the maturity of acquisition financing. The sale target is approximately 60% of Able C&C shares held by IMM PE through a special purpose company (SPC). During the acquisition, Shinhan Bank and Shinhan Investment Corp. provided 160 billion KRW in acquisition financing. Investors in the fund raised by IMM include the Korea Post, National Pension Service, and the Science and Technology Credit Guarantee Fund. IMM plans to seek buyers overseas rather than domestically, as overseas growth continues. To protect investors, compensation for principal, interest, and delayed interest will also be provided..