JKL, Harim Group named preferred bidder for Korea's Pan Ocean

Harim said in a regulatory filing that Pan Ocean will issue new shares worth KRW850 billion ($771 million), of which its subsidiary - Jeil Holdings - would acquire KRW680 billion, becoming the largest shareholder. It was reported earlier this week that the joint bid by JKL and Harim was worth around KRW1.05 trillion.

Pan Ocean, which South Korea's largest bulk shipping group, filed for court receivership in June 2013 after attempts to secure a private equity-led restructuring of the beleaguered business failed. It was subsequently spun off from STX Group.

STX is one of a number of Korean conglomerates that have been seeking to divest assets in response to a prolonged downturn in industries such as shipping and construction. STX Offshore & Shipbuilding filed for a debt restructuring with creditors last year, while another subsidiary, the commercially healthy STX Energy, was briefly an investment target for Hahn & Co. but no deal went through.

Pan Ocean aggressively expanded its fleet in 2007-2008 only to see the market crumble. It currently has around 90 vessels, nearly three quarters of which are bulk transporters.

Pan Ocean recorded sales of $2.45 billion in 2013, down from $4.8 billion the previous year as losses slid from $415.7 million to $1.76 billion. The company's debt-to-equity ratio was 1,926%. There has been a partial recovery in 2014, with sales of $1.1 billion and net profit of $546 million for the first nine months. The debt-to-equity ratio has fallen to 455%.

After filing for court receivership, lenders carried out a $1.17 billion debt-for-equity swap.

All four of Korea's leading dry bulk carriers are in distress. While Korea Line entered bankruptcy before Pan Ocean, Hanjin Shipping and Hyundai Merchant Marine (HMM) have both sought to raise capital through asset sales and restructurings.

At the beginning of 2014, Hahn & Co. agreed to take a majority stake in a new joint venture comprising certain bulk and liquefied natural gas (LNG) assets owned by Hanjin, paying KRW400 billion for its share and assuming KRW1.4 trillion in debt. IMM Private Equity was then named the preferred bidder for HMM's LNG business in a deal worth KRW1.1 trillion.

Korea Line entered bankruptcy before Pan Ocean. Hahn & Co. was previously selected as the preferred bidder for Korea Line through a bankruptcy court process but withdrew from the deal due to discomfort with certain contingent liabilities.

Established in 2001, JKL has raised seven funds and has more than KRW600 billion in assets under management. The most recent fund - JKL 7th Growth Strategy M&A PEF - closed in October at KRW176 billion, exceeding the KRW150 billion target. LPs include the Public Officials Benefit Association, the Korea Scientists & Engineers Mutual Aid Association, Nonghyup Financial Group and NH Bank.

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• Topics
• Buyouts
• Restructuring
• Industrials
• North Asia
• South Korea
• buyout
• Distress
• Logistics
• Transportation