Vogo expects strong returns on full exit from Tong Yang Life - Update
Vogo Investment expects to see an IRR of at least 20% on its initial investment in Tong Yang Life Insurance as negotiations with potential strategic buyers near a close. The private equity firm is seeking to exit 60.7% of its 64% stake in the business in order to capitalize on the scarcity value of a controlling stake in a Korean insurer coming onto the market.
Prudential Financial and Korea Life Insurance plan to submit separate bids for the holding, which is worth KRW850 billion ($742 million) at its current market value, Reuters reported, citing people familiar with the situation.
The 20% IRR - described by AVCJ's sources as a conservative estimate - relates to the approximate 17% stake in Tong Yang Life that was acquired by Vogo Fund I in 2006. It comes as Vogo continues fundraising efforts for what will be its third vehicle, which has a target of $650 million.
Vogo Fund II was a project-specific vehicle created in 2010 to purchase a controlling stake in the insurer. When the private equity firm first invested in Tong Yang Life it did so on the condition that it would get first refusal on any future sale of more than 30% of the company. This duly happened in late 2010, and Vogo picked up an additional 46.5% holding for KRW900 billion ($798 million). One third of the sum was covered by leveraged financing.
Vogo's investment in the insurer was a classic case of a second-tier South Korean conglomerate being forced by creditors to divest non-core assets in order to finance debt repayments.
The most high-profile example is Kumho Asiana, which found itself in difficulty following the highly leveraged purchase of Daewoo Engineering & Construction in 2006 by subsidiary Kumho Industrial. Korea Development Bank and other creditors placed the company into a debt restructuring program in late 2009 and acquired it several months later.
Kumho Asiana subsequently sold off Kumho Rent-A-Car to MBK Partners and Korea Telecom for KRW300 billion in 2010 and Kumho Industrial is reportedly looking to divest KRW1 trillion ($884.5 billion) worth of assets to approximately 10 private equity funds.
In late December, Vogo exited household appliance manufacturer Novita through a trade sale to US firm Kohler, reportedly earning a near 200% return on its investment. Bae, Kim & Lee advised Vogo on the sale.
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