Hahn & Co. in $130m bankruptcy buyout

In all fairness, time was of the essence. Korea Line, the country's fourth-largest shipping company, entered bankruptcy and restructuring in early 2011 and the process was protracted by creditors waiting in vain for evidence of a turnaround in the global freight market. As a publicly-traded company, Korea Line was legally obliged to delist on March 31 if fresh capital couldn't be found.

"With a court receivership there are no meetings with management before you invest, which makes it hard for private equity firms to enter this kind of process," says Scott Hahn, CEO of Hahn & Co, the GP selected by the court as preferred bidder for Korea Line. "It is a very domestic process."

Hahn & Co. has previous experience in this area, having acquired Daehan Cement from troubled Daehan Group for $65 million last year via bankruptcy proceedings. The private equity firm began its homework on Korea Line before the process began and so was able to act quickly. Five parties expressed an interest in the asset and this was whittled down to two, with Hahn & Co. winning out over a shipping finance company.

The enterprise value of the transaction is KRW1.1 trillion ($1 billion), with the PE investor set to commit KRW140 billion in equity for its holding, pending creditor approval. It is comfortably the biggest investment made by the 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.

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.

"This is a sector we have been looking at it for a long time," Hahn adds. "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, third for steaming coal, fourth for crude oil and third for coking coal."

Korea Line slipped up by overextending itself during the pre-global financial crisis 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's business model.

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• Topics
• Restructuring
• Restructuring
• Credit/Special Situations
• Industrials
• North Asia
• South Korea
• Distress