IMM, Mirae forge POSCO steel investment

Just over 15 years on the wheel has come full circle. POSCO - faced with falling profits and consolidated debts of KRW39.6 trillion ($35.3 billion), as of March - has been forced to sell off part of PSS. After an attempted $424 million IPO was abandoned last December following a downturn in the steel industry leading, POSCO turned to financial investors.

Enter IMM Private Equity and Mirae Asset Management, which together acquired a 24% stake in the company last week for KRW250 billion ($223.6 million). Each is putting in KRW125 billion, subscribing to 8.6 million convertible preference shares with a conversion price of KRW29,000 per share and a maturity of five years. The deal values the company at around 7x EBITDA.

"This is a classic special situation investment opportunity for us," says Jay Kim, vice president at IMM. "PSS was looking to secure more than KRW250 billion but there were not many Korean GPs who could take up such an offer. We were invited with Mirae to look at the deal and it took just a few months before we decided to invest."

PSS, which has its main factory in Seoul, produces stainless steel, tool steel and special alloy steel with an annual capacity of 960,000 metric tons. It supplies the automotive, aviation, shipbuilding and electronics industries. The company wants to achieve a capacity of 2.5 million tons by 2020 with turnover reaching KRW4.5 trillion.

Capital is required to meet this expansion target. PSS invested more than $1 billion in its Korean operations - it wants to move up the value chain into more specialized steel products - and has also entered Vietnam, with the POSCO SS-VINA steel mill opening last year.

"We anticipate the Vietnam operation will become the second or third biggest player in the country by capacity. Once the business stabilizes, it is expected the subsidiary will be half the size of the Korean operation," says Kim.
PSS has been actively enlarging its regional footprint since 2008, opening offices in China, Thailand and Japan. Its client base spans Europe, North America, the Middle East and South Africa, as well as Asia.

IMM hopes get an attractive valuation when it exits the company via IPO in the next 4-5 years, once the global steel industry recovers. "PSS had already passed its initial conditions to get listed so when the time comes we believe listing will be easy," Kim says.

IMM's investment comes from its second fund, which closed at KRW756 billion in December 2012. With this latest transaction the vehicle is just over 50% deployed. 

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• Topics
• North Asia
• Industrials
• Expansion
• South Korea
• manufacturing
• IMM Investment
• Growth capital