[Hyundai Heavy Power M&A]① Korea Shipbuilding & Offshore Engineering to Sell 'Hyundai Heavy Power' to Bayside PE

Corporate Valuation at 205 Billion KRW
Plan to Transfer 95.5% Stake Leaving 4.5%
Acquisition Financing and RPS Used to Raise Acquisition Funds

[Image source=Yonhap News]

[Asia Economy Reporter Lim Jeong-su] Korea Shipbuilding & Offshore Engineering, the intermediate holding company for the shipbuilding division of Hyundai Heavy Industries Group, is selling the majority of its shares in Hyundai Heavy Industries Power Systems (Hyundai Power) to Bayside Private Equity (Bayside PE). It is expected that the proceeds from the sale of Hyundai Power will be used for the acquisition of Daewoo Shipbuilding & Marine Engineering (DSME) and other investments.

According to the investment banking (IB) industry on the 6th, Korea Shipbuilding & Offshore Engineering has decided to sell 95.5% of Hyundai Power’s shares to Bayside PE. Initially, Korea Shipbuilding & Offshore Engineering planned to sell 75% of the shares, but during negotiations, the portion to be transferred to Bayside PE was increased to 95.5%. After the sale is completed, Korea Shipbuilding & Offshore Engineering will retain only 4.5% of Hyundai Power’s shares.

Hyundai Power was established in August 2018 as a subsidiary spun off from Hyundai Heavy Industries’ Offshore Plant Division during the restructuring of Hyundai Heavy Industries Group’s business structure. It focuses primarily on desulfurization devices (scrubbers) and industrial boilers. Last year, it recorded sales of 232.5 billion KRW and an operating profit of 33.2 billion KRW.

The core scrubber division achieved sales of 147.2 billion KRW and an operating profit of 25.9 billion KRW last year, overwhelmingly surpassing the industrial boiler division (sales of 84.7 billion KRW, operating profit of 7 billion KRW) in performance contribution. Over 90% of scrubber sales are generated through internal transactions with Hyundai Heavy Industries Group affiliates.

Bayside PE plans to establish a holding company called 'HPS Holdings' to acquire existing shares of Hyundai Power. The acquisition price for the 95.5% stake is valued at 195.8 billion KRW. The valuation for 100% of the shares is 205 billion KRW. It is reported that the enterprise value (EV) was calculated by applying a multiple of 8 times the annual EBITDA as of the end of last year.

Bayside PE is currently raising private equity fund investment capital to acquire Hyundai Power’s shares. Of this, 105 billion KRW will be raised through acquisition financing. The loan-to-value ratio (LTV) relative to the total valuation of the shares being sold is approximately 54%. The size of the mezzanine redeemable preferred stock (RPS) and subordinated equity is around 100 billion KRW.

Korea Shipbuilding & Offshore Engineering is expected to use the funds raised from the sale of Hyundai Power as resources for acquiring DSME and other purposes. This is part of a process to divest non-core businesses and expand and strengthen its core shipbuilding and plant divisions.

Hyundai Heavy Industries Group agreed in January last year to acquire DSME from the Korea Development Bank (KDB). KDB will contribute its 55.7% stake in DSME in kind to Hyundai Heavy Industries, receiving shares (preferred and common) of the holding company Korea Shipbuilding & Offshore Engineering in return, becoming the second-largest shareholder. Subsequently, DSME plans to conduct a third-party allotment capital increase worth 1.5 trillion KRW targeting Korea Shipbuilding & Offshore Engineering and others.

Meanwhile, Bayside PE, the new owner of Hyundai Power, is a newly established private equity firm founded in 2017 by former executives from Keystone Private Equity. During their time at Keystone, they successfully completed the acquisition of Daewoo Shipbuilding & Marine Engineering Construction and, after becoming independent, participated in multiple transactions related to the normalization of DSME, including acquiring Wellib, a catering company affiliated with DSME.

This content was produced with the assistance of AI translation services.