Hahn & Co. to buy stake in South Korea’s STX Energy - UPDATE

The valuation agreed by Hahn & Co. and STX is based on the private equity firm assuming management control of the business. This would come through STX exercising a call option for 6.9% of Orix's stake in teh company with a view to awarding Hahn & Co. proxy voting rights. STX holds five of the eight board seats.

Last October, a 43.1% stake in STX Energy was sold to Orix for KRW360.1 billion ($330 million) and the Japanese firm subsequently acquired another 7%, taking its holding past 50%. However, STX and Orix are in dispute as to when and how the call option can be exercised. 

According to sources familiar with the situation, relations between the two parties have deteriorated since the initial investment, and this prompted STX to reach out to Hahn & Co. The private equity firm considered buying the business in 2011 but negotiations foundered over the management control issue. STX then talked to other potential PE investors before doing a deal with Orix.

STX, a shipping, trading and shipbuilding titan, is struggling to meet its debt obligations in the face of weak dry-bulk freight rates and sluggish demand for new vessels.

The group's creditors will pump in at least KRW800 billion to keep it afloat, according to local media. On Friday, the parent company and two affiliates asked Korea Development Bank, their main creditor, to supply liquidity in return for voluntary debt relief and restructuring. 

STX subsidiaries are expected to see KRW910 billion worth of bonds mature in the first half of 2014 and a further KRW420 billion in the second half. STX Offshore & Shipbuilding has already received KRW600 billion from creditors to repay maturing bonds. STX Pan Ocean is also struggling while STX Construction applied for court receivership in April.

STX Energy is not among the distressed units. The company is involved in domestic power generation and was one of the first to benefit from teh gradual privatization of the sector. While electricity transmission and distribution remain under state control, independent power providers are now permitted. STX Energy was the first to receive a license to build a coal-fired power plant.

There is no shortage of conglomerates, or chaebols, mooted as potential sellers, most of them drawn from the second and third tiers of corporate Korea. Some, like STX, are in distress, but others are under political pressure to stop expanding beyond their core businesses due to concerns that they are stifling the development of smaller companies.

This is not the first time Hahn & Co. has been linked with a distressed chaebol. Earlier this year, the private equity firm, which spun-out from Morgan Stanley Private Equity Asia, agreed to buy bulk carrier Korea Line out of court receivership in a KRW1.1 trillion deal, including an equity commitment of KRW140 billion.

However, the private equity firm pulled out when it emerged that certain liabilities wouldn't be removed from the balance sheet, which made the deal too risky.

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• Topics
• Buyouts
• North Asia
• Credit/Special Situations
• buyout
• South Korea
• Scott Sang-won Hahn
• energy
• Commodities