MBK to buy majority stake in Korea's Lotte Card for $1.2b

Lotte said in a filing that MBK would take a 79.83% equity interest in the business and have the right to transfer up to 20% to Woori Bank. Lotte will retain 13.95%. It is the company's second announced divestment to private equity in a matter of days, following a decision to sell a 53.5% stake in Lotte Non-Life Insurance to domestic GP JKL Partners for KRW373.4 billion. Lotte will retain 5% of the business.

The transactions arose from Lotte switching to a holding company structure and simplifying the web of cross-shareholdings through which the group – Korea's fifth-largest chaebol – retains control of its assets. The first step of this process saw Lotte consolidate its major food and beverage and retail divisions in 2017. Korean regulations prohibit holding companies from controlling financial services businesses, so stakes in the credit card insurance operations were put up on the block earlier this year.

The sale process for a third asset, loan services business Lotte Capital, has yet to reach a similar outcome. Mergermarket – AVCJ's sister publication – reported that Lotte was considering abandoning the divestment plan in favor of reorganizing the shareholding structure within the group, given it only has a 25.64% stake in the entity. The largest shareholder is Japan-based Lotte Holdings.

Hahn & Company was initially selected as the preferred bidder for Lotte Card, but the exclusivity period lapsed with no agreement reached. According to a source familiar with the situation, the two sides didn't agree on certain terms and then MBK came in with a revised offer.

It is unclear whether MBK will bring other partners into the deal apart from Woori Bank. When Affinity Equity Partners acquired 24% of Hyundai Card for KRW376.6 billion in 2017, GIC Private and AlpInvest Partners came in as co-investors because foreign investment restrictions meant a single party could not own 10% or more. MBK, however, is a Korea-registered firm.

Hyundai Card is the third-largest player in Korea's credit card market, trailing Shinhan Card and Samsung Card but ahead of KB Kookmin Card. Together they have a 60% share. Lotte Card is said to rank fifth. Total assets stood at KRW12.92 trillion as of year-end 2018. Revenue came to KRW1.72 trillion, down from KRW1.97 trillion in 2017, while net income rose from KRW46.9 billion to KRW111.3 billion.

MBK targets control deals in South Korea, Japan, and Greater China. The firm is currently investing its fourth fund, which closed at $4.1 billion in late 2016. JKL claims to have raised KRW1.56 trillion across 10 funds since 2009. It is said to have started with project vehicles for single assets before graduating to traditional blind pool funds.

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• Topics
• North Asia
• Buyouts
• Financials
• South Korea
• MBK Partners
• Hahn & Co