'Momentive Listing Within Deadline Fails' KCC Raises 400 Billion Won to Purchase FI Shares

Silicon Business Deficit Leads to Indefinite IPO Postponement
SJL Partners Exercises Call Option on 20% Stake
KCC "Continuing to Weigh Timing of NYSE Listing"

KCC, the holding company of the KCC Group, has raised 400 billion KRW in funds from Hana Bank and others. It is believed that the funds were raised to acquire a 20% stake in 'Momentive,' KCC's U.S. silicon business subsidiary, held by SJL Partners. When KCC received investment from SJL, it promised to list Momentive within five years, but as the listing within the deadline became difficult, KCC faced a situation where it had to acquire the shares held by SJL.

According to the investment banking (IB) industry on the 30th, KCC recently received a loan of 400 billion KRW from a special purpose company (SPC) organized with Hana Bank and others as lead managers. To this end, Hana Bank executed 300 billion KRW worth of asset-backed loans (ABL) to the SPC, and the SPC additionally issued 100 billion KRW in asset-backed notes to secure loan funds for KCC. The maturity of the entire loan is reported to be three years.

KCC appears to have raised a large amount of funds to acquire the shares held by financial investors (FI) who participated in the acquisition of Momentive. In 2019, KCC formed a consortium with the private equity fund SJL Partners when acquiring Momentive. At that time, KCC attracted SJL as an investor and promised to list Momentive on the U.S. stock market by May of this year, five years after the acquisition. This was a promise to pave the way for SJL to exit its shares through a market sale.

If the listing fails, a 'Drag Along' clause allows SJL to demand that KCC jointly sell the Momentive shares. If the listing fails and KCC does not want to sell the shares, SJL must exercise a call option (the right to repurchase) on the shares it holds. For this, approximately 400 billion KRW in funds is required, applying a 5% compound interest over five years to the value of the 20% stake in Momentive held by SJL.

For Momentive's listing on the New York Stock Exchange (NYSE), KCC selected Citi Global Markets Securities, Morgan Stanley, and Goldman Sachs as lead managers in August last year and began the listing process. The plan was to repay the acquisition financing of 1.8 billion USD (about 2 trillion KRW) borrowed during the acquisition with the funds raised from the listing. However, as the silicon business recorded losses, listing within the deadline became difficult.

An IB industry insider said, "Initially, Momentive's listing corporate value was expected to reach 5 to 7 trillion KRW, but due to recent poor performance, a decline in corporate value became inevitable," adding, "Therefore, the direction was recently changed to withdraw the listing and purchase the FI shares."

A KCC official stated, "We decided to proactively negotiate with the FI side to purchase the shares before the Momentive listing deadline," and added, "However, this does not mean we are withdrawing the listing; we will weigh the timing of the listing in the long term."

KCC has been confident that even if Momentive's listing fails, it can sufficiently respond with its cash and assets such as shares in Samsung C&T Corporation. Its cash and short-term financial products amount to 2 trillion KRW, and the value of its 9.8% stake in Samsung C&T exceeds 2 trillion KRW, indicating that it can exercise the call option independently without external funding.

Nevertheless, the reason for raising large-scale funds is interpreted as KCC's significant short-term repayment burden, comparable to its cash assets. As of the end of last year, KCC's consolidated borrowings approached 5.3 trillion KRW due to the acquisition of Momentive and sluggish performance in the silicon, construction, and building materials businesses. Among these, short-term borrowings and long-term current liabilities that must be repaid within one year amount to 2.16 trillion KRW.

An IB industry insider said, "With a heavy burden of short-term borrowings, and profitability worsening in the silicon, construction, and building materials businesses, cash flow has deteriorated," adding, "It appears that KCC raised additional funds to respond to the failure of Momentive's listing while holding onto its Samsung C&T shares without selling them immediately."