NH Securities, Reasons for MBK's Sell-Down of Acquisition Financing

Ostem Implant, Medit, BHC Acquisition Financing Resale
Korea Zinc Acquisition Financing 1.5 Trillion Won Raised with Expected Own Capital Injection
MBK Raised by Tender Offer, Borrows Additional Funds from Yeongpung

NH Investment & Securities has secured liquidity funds of 180 billion to 190 billion KRW by selling down several acquisition financing deals previously provided to the private equity firm MBK Partners. It is speculated that NH Investment & Securities, which has committed to providing 1.5 trillion KRW in acquisition financing for MBK's public tender offer for Korea Zinc, has secured the necessary funds for the acquisition financing loans.

According to the investment banking (IB) industry on the 26th, NH Investment & Securities issued securitized bonds in the form of Collateralized Loan Obligations (CLOs) through a Special Purpose Company (SPC). CLOs are securitized bonds issued with the principal and interest of multiple loan receivables as underlying assets (collateral). When the borrower (the company that borrowed the money) repays the principal and interest, the funds are used to repay the investors of the securitized bonds.

The loans underlying the CLO are six acquisition financing loans NH Investment & Securities lent to MBK when acquiring Ostem Implant, Medit, and BHC. The underlying assets include a 120 billion KRW senior and mezzanine loan to Dentistry Investment, a 29.6 billion KRW loan to Digital Dentistry Solution Holdings, a 36.9 billion KRW senior and mezzanine loan to Global Gourmet Services, and a 7 billion KRW loan to BHC.

All borrowers are companies acquired by MBK or corporations established for mergers and acquisitions (M&A). Dentistry Investment is a corporation established by MBK in consortium with the private equity fund UCK Partners to acquire the management stake of Ostem Implant. It currently holds 83% of Ostem Implant’s shares. Digital Dentistry Solution Holdings was established when acquiring the oral scanner company Medit for 2.4 trillion KRW and holds 99.46% of Medit’s shares. Global Gourmet Services was created to acquire BHC and currently holds 100% of BHC’s common stock.

The funds NH Investment & Securities secured by issuing the CLO are expected to be used to support MBK’s public tender offer for Korea Zinc. NH Investment & Securities has agreed to provide 1.5 trillion KRW in acquisition financing for MBK’s Korea Zinc tender offer. An IB industry insider said, "Since the money is not earmarked, it is difficult to specify the exact use of the funds," but added, "As the lead arranger raising acquisition financing for Korea Zinc, NH Investment & Securities would need liquidity to invest its own funds."

MBK’s financial burden increased as it decided to raise the public tender offer price for Korea Zinc to 750,000 KRW. Initially, the public tender offer was planned with a total of 2 trillion KRW, combining 500 billion KRW of fund capital and 1.5 trillion KRW of acquisition financing. However, since the stock price remained above the initial public tender offer price of 660,000 KRW, staying in the 700,000 KRW range, the incentive for shareholders to tender their shares was low. Therefore, MBK raised the tender offer price above the market price as a strategic move to secure a controlling stake.

The additional funds required due to the increased tender offer price were borrowed from Young Poong. Young Poong announced the day before that it would borrow 300 billion KRW in short-term loans from financial institutions and re-lend the amount to MBK. As a result, it is estimated that MBK has secured at least 2.3 trillion KRW for the Korea Zinc public tender offer.

An NH Investment & Securities official stated, "This CLO issuance was conducted as part of managing investment limits for corporate finance."