"Enemy or Ally"... Foreign Fund KKR Maximizes Profits Amid Taeyoung Group Crisis

KKR Recovers 70 Billion KRW Over 2 Years Through Ecobit Dividends
Annual Interest of 50 Billion KRW from 13% High-Interest Loan

Foreign private equity firm Kohlberg Kravis Roberts (KKR) is maximizing profits amid Taeyoung Group's 'workout (corporate financial restructuring)' crisis. On the surface, KKR appears to be an ally extending a helping hand during Taeyoung Group's liquidity crisis, but in reality, it is causing a deterioration in Taeyoung Group's profitability through high dividends, high interest rates, and excessive collateral demands.

According to the Financial Supervisory Service's electronic disclosure system on the 9th, KKR, a global private equity firm holding 50% of the shares of Taeyoung Group's key company Ecobit, has realized most of its net income as dividend income since acquiring its stake in 2021.

Dividends, High Interest Rates, and Excessive Collateral Demands 'Cause Profitability Deterioration'

Analysis of Ecobit's 2021 and 2022 business reports shows that KKR received cash dividends of 58,333 KRW per share in 2021 and 60,752 KRW per share in 2022. Holding 600,000 shares (50%) of Ecobit, KKR, together with Taeyoung Group's holding company TY Holdings, recovered 70 to 73 billion KRW annually in dividends. During this period, the company's net income ranged from 70 to 73.7 billion KRW. In 2022, the amount paid out as dividends exceeded net income. Together with the holding company, most of the net income was extracted as dividends. Although the 2023 business report has not yet been released, based on past dividend payout trends, it is expected that dividend income maximization was also pursued last year.

The sale of Ecobit and the funding support from the sale are considered key elements of Taeyoung Construction's 'workout' self-rescue plan. Ecobit is a comprehensive environmental company and the cash cow of Taeyoung Group, valued in the 3 trillion KRW range. The company was formed in 2021 through the merger of Taeyoung Group's TSK Corporation and KKR's Ecosolution Group, focusing on medical and industrial waste incineration and recycling as its main businesses.

KKR also secured high-interest loans using Ecobit shares as collateral. Earlier this year, KKR lent 400 billion KRW to Taeyoung Group's holding company TY Holdings in the form of private bonds with a 4-year maturity and an annual interest rate of 13%. The annual interest alone amounts to 50 to 60 billion KRW. In this process, TY Holdings' Ecobit shares were taken as collateral. An investment banking industry insider explained, "Since bank financing was not available, high-interest loans were likely arranged. There are not many places willing to accept shares of unlisted companies, but since KKR already owns 50% of the shares, it was possible." However, it is also known that the contract includes provisions allowing KKR to seize all Ecobit shares if TY Holdings faces default, leading to criticism that the foreign private equity firm is excessively profiting from a domestic company in crisis. A financial industry official said, "The contract terms imposed on Taeyoung are excessive to the point of disbelief."

Will the No.1 Domestic Waste Company Be Sold Cheaply to a Foreign Fund?

The problem arises if KKR holds the preemptive purchase rights for Ecobit's management through shareholder agreements. Since Taeyoung Group has stated it will sell Ecobit shares as part of its self-rescue plan to support Taeyoung Construction, attention is focused on who will acquire the company if it goes on the market. Ecobit's corporate value is estimated to be between 2 trillion and 3 trillion KRW. As Ecobit is a joint venture between Taeyoung Group and KKR, KKR's consent is required to proceed with a full-scale sale. However, whether the company can receive a proper valuation under these circumstances is a key issue. Since the sale of Ecobit was included in the self-rescue plan submitted to creditors, it must be sold within a certain period. This inevitably weakens negotiating power during the sale process. There is also a possibility that KKR may acquire the remaining 50% stake at a low price during this process.

Ecobit is regarded as a key company within Taeyoung Group. As of the first half of last year, it recorded sales of 334.4 billion KRW and operating profit of 52.8 billion KRW. In 2022, sales reached 756 billion KRW with an operating profit of 225.5 billion KRW. It has competitiveness in high-priced designated waste landfill and medical waste incineration. It holds a 22% market share in nationwide water treatment facility capacity, ranking first, and a 40% share in medical waste incineration. With the domestic waste market expanding and the social importance of the environmental industry increasing, its future value is even higher. Ecobit has announced a vision to increase its corporate value to 5 trillion KRW by 2026. This is 2 trillion KRW more than the currently mentioned sale price of 3 trillion KRW. Considering the structural growth of the waste market and an initial public offering (IPO), the corporate value could increase further. Other potential buyers mentioned besides KKR include environmental industry competitors SK Ecoplant and IS Dongseo.

Previously, KKR acquired key companies amid the accelerating financial crisis of Taeyoung Construction. Recently, KKR acquired 100% of Taeyoung Group's logistics company Taeyoung Industry for 240 billion KRW. KKR purchased 100% of Taeyoung Industry shares held by TY Holdings and Chairman Yoon Seok-min for 240 billion KRW, and 37.5% of TY Holdings' Pyeongtaek Silo shares for 60 billion KRW. Taeyoung Industry has been responsible for logistics within Taeyoung Group since 1990. It operates grain silos (powder material storage tanks), liquid cargo terminals, and dock facilities based in Pyeongtaek and Ulsan, generating stable profits over a long period. It effectively acquired a cash-generating company and an additional affiliate suitable for 'bolt-on' acquisition as a one-plus-one (1+1) deal. Considering Taeyoung Group's situation, this can be seen as a reasonable deal for both parties, but from the perspective of fund investors and headquarters, KKR cannot be regarded as an ally.

The relationship between KKR and Taeyoung Group is not long-standing. Taeyoung Group proactively started its environmental business in 2004 with Taeyoung Environment. In 2010, it launched TSK Corporation, bringing in SK Construction and SK Chemical as the second and third largest shareholders, growing the business over ten years. In 2020, when SK directly entered the waste business and offered its shares to end the partnership, KKR acquired them. In 2021, Taeyoung Construction spun off TY Holdings, transferring TSK Corporation shares, and merged with an environmental company additionally acquired by KKR, leading to the launch of Ecobit in October 2021.