Done Deals: Chase, UBS Buy Korean Parts Co. –

Marking its second acquisition in Asia, Chase Asia Equity Partners teamed with UBS Capital this month to buy the chassis-making business of troubled Mando Machinery Corp., one of South Korea’s largest auto parts makers, in a deal worth $446 million in debt and equity.

The leveraged buyout, which consists of $167 million in equity-$117 million from Chase Asia and $50 million from UBS-includes $279 million in a bridge loan facility arranged by Korean banks, led by Korea Exchange Bank and Hanvit Bank. The bridge loan will be refinanced in early 2000 by a committed term loan facility.

Mando Machinery, which makes chassis, or automobile frames, has $600 million in annual sales. The capital and debt supplied by Chase Asia and UBS Capital will be used to incorporate Mando Machinery’s three chassis manufacturing plants.

The Chase Asia and UBS deal is one of the largest private equity transactions in South Korea. Last August little-known investors, Walid Alomar & Associates made the first controlling interest buyout in the country, leading an investment group that bought 80% of the electronics business of conglomerate Daewoo Group in a deal worth $3.2 billion.

Mando Machinery’s former parent was the Halla Group, which went bankrupt during the 1997 Asian economic crisis. Halla was also the first chaebol, or mega-company, to be broken up and restructured over a year ago. Chase Asia said Mando Machinery is in the process of being dissolved.

Chaebols, like the Halla Group, for decades enjoyed unlimited access to bank loans and were allowed to borrow and expand without regard to profitability. Recently, the country’s government-controlled banks have made concerted efforts to bust up these debt-burdened conglomerates, by forcing them to sell off divisions.

The deal is UBS Capital’s third buyout in Asia. In November 1999, the firm closed on its $220 million leveraged buyout of the Mando conglomerate’s climate control business.

UBS Capital president David Lai, who is based in Singapore, said his firm’s previous deal with Mando “helped build a strong level of trust and comfort with the Mando management team. This helped facilitate the investors to navigate around some challenging issues and other hurdles.”

Second Asian Deal for Chase

The Mando Machinery buyout marks the second Asia deal that Chase Asia has made public since the fund was launched last April. The fund’s first transaction was a leveraged buyout of ASAT, a semiconductor chip packaging business based in Hong Kong. The firm led an investor group in the deal, which was comprised of a $200 million equity piece and $200 million in debt.

Chase Capital Partners general partner Arnold Chavkin said the firm was attracted to Mando Machinery because it holds the dominant position in the country’s domestic auto supply arena, a market Chase Capital expects will grow. Solid management, technological capability and the company’s secure relationship with Hyundai, the country’s largest car maker, make Mando Machinery an attractive investment, Chavkin said.

“We think there’s an opportunity to grow in the export market which will help diversify the company’s customer base and grow it faster than the market,” Chavkin added.

The existing management team at Mando Machinery will continue to run the new entity.

Private equity investing in Asian countries has had its share of obstacles. Investors face issues related to accounting transparency, scarcity of management talent, weak legal protections, the absence of available debt for transactions and the closed nature of the Asian family business community (BUYOUTS June 21, 1999, p. 1).

“It’s a challenging place, but if you know how to manage situations and empathize with the culture there, it can be a rewarding place,” Lai said. “If you don’t then it can be a brick wall.”

Asia’s Buyout Bulls

Lai said UBS Capital continues to be bullish on private equity in Korea.

“We like in particular, the can-do and want-to-do-since-yesterday attitude of the people we’ve come across,” he added.

Chavkin said the overall economic conditions in Korea have bounced back quickly from the turmoil of a few years ago and his firm did not find the process of the Mando Machinery buyout difficult to navigate. Chase Asia began negotiating the deal at the end of August and closed it at the end of December.

“Financing deals in Korea has its challenges because of the market there,” Chavkin said, noting that leveraged deals are new in Korea. “It takes time and education, patience. It’s all doable.”

“There are good companies in Korea,” Chavkin added. “I think everybody sees that.”

Chavkin said the Chase Asia’s latest close was held in early January on just under $800 million. To date, more than $250 million of the fund has been invested.