MBK Partners to fully redeem investment in Coway through debt refinancing plan

South Korea’s private equity firm MBK Partners is out to recoup the remaining 200 billion won ($175 million) out of a total initial investment of 420 billion won in the nation’s leading consumer health appliance rental and service company Coway Co. through debt refinancing plan.

According to the investment banking industry on Sunday, MBK Partners, the largest shareholder of Coway, is working to raise its loan limit of 830 billion won to around 1 trillion won backed by its 30.9 percent stake in Coway in an attempt to redeem rest of its original investment in the company.

It assigned Mirae Asset Daewoo to arrange refinancing scheme. MBK will take out the loan through Coway Holdings, a special purpose company (SPC) established to take over Coway, and recollect its investment by receiving dividends from Coway Holdings.

MBK is seeking leveraged recapitalization, a financing vehicle where an investor takes an additional debt to redeem the original investment and then pays back the loan through equity sale later. The strategy is preferred by private equity funds as it enhances their internal rate of return (IRR), a measure of the profitability of a potential investment.

MBK will remain the largest stakeholder in Coway after the refinancing. The private equity investor used the same financial technique to recoup 350 billion won worth investment in 2014. It bought a 30.9 percent stake in Coway and management right for 1.19 trillion won, or 50,000 won per share, in early 2013. When the recapitalization is completed, it could recollect all the original buyout investment of 420 billion won minus the financing cost.

MBK’s refinancing comes following the spike in shares of Coway. Its shares closed at 85,400 won on February 3, almost doubling from 43,500 won on January 2, 2013 when MBK had taken over the company. Its shares have marched higher since MBK’s takeover that has helped stabilize the company’s management and has successfully added new businesses including air purifier. On Monday, shares of Coway ended at 85,700 won, edging up 0.4 percent, or 300 won, from the previous session.

The 30.9 percent stake that MBK holds in Coway is valued at around 2.03 trillion won as of February 3. Coway is expected to raise its dividend payout by 25 percent this year to meet with the increased debt and interest burden of its largest shareholder.

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