Hahn & Co to buy Korea Line via bankrupcty process

The deal requires creditor approval and is expected to close in March. It is comfortably the biggest investment made by the South Korean GP, whose team spun out from Morgan Stanley Private Equity Asia (MSPEA) in 2010 and raised $750 million for its debut fund the following year. According to CEO Scott Hahn, the deal is also larger than any Korea-focused transactions he worked on at MSPEA.

Korea Line has 32 vessels and $1.5 billion in assets, trailing only Hanjin Shipping, Hyundai Merchant Marine and STX Pan Ocean among domestic carriers. It posted revenues of $600 million in 2011 and EBITDA of $190 million. The KRW1.1 trillion price tag is essentially the liquidity value of the business; the court isn't permitted to go below this level.

Five parties expressed an interest in participating in what was a rapid bankruptcy sale process in late December and early January. Hahn & Co. overcame the challenge of a shipping finance company - supposedly backed by a strategic investor - to secure the deal.

"This is a sector we have been looking at it for a long time," Hahn told AVCJ. "This company only does bulk - it only imports raw materials that Korea Inc requires. The business is not trade dependent because South Korea has zero natural resources. We are the number two importer of liquefied natural gas, the number three for steaming coal, number four for crude oil and number three for coking coal."

Korea Line slipped up by overextending itself during the 2007-2008 boom years when the sector was at the peak of a super cycle. The company deviated from its core strategy and moved into ship chartering, taking vessels on 3-4 year leases from Europe and hiring them on a short-term basis, and at a higher margin, to domestic shipping companies. When global freight rates collapsed so did Korea Line Shipping's business model.

The company entered bankruptcy and restructuring proceedings in early 2011. Industry participants suggest that the creditors waited too long in the hope of seeing a turnaround in the global shipping market, giving the company the benefit of the doubt because of its size and status. There is a March 31 deadline for putting fresh capital into the business otherwise it will have to de-list.

Acquiring companies out of bankruptcy in Korea is notoriously difficult but this is the second time in 12 months that Hahn & Co. has entered into such a transaction. Last May it carved out Daehan Cement from troubled Daehan Group for $65 million.

This is the fifth investment from Hahn & Co's fund, which is now 50% deployed. Last month the private equity firm completed another carve-out - although not out of bankruptcy on this occasion - of Eugene Corp's cement manufacturing division for an enterprise value of $85 million.

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• Topics
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• Scott Sang-won Hahn
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