Hyundai BNG Steel mulls various financing options for LG Hausys asset acquisition

South Korea’s Hyundai BNG Steel that is in talks with LG Hausys to acquire the latter’s auto materials and industrial business in a bid to diversify its business portfolio is seeking either debt financing or bond issuance for the buyout, sources said.

The two companies already signed a memorandum of understanding (MOU) on the buyout on Jan. 26, Hyundai BNG Steel disclosed in a regulatory filing last Tuesday.

Detailed terms and conditions including a final deal value and structure will be determined after Hyundai BNG Steel’s due diligence but the overall deal value is estimated to be some 300 billion won ($26.8 million).

Bank of America is a lead manager of the deal and EY Hanyoung Korea is a financial and accounting adviser for Hyundai BNG Steel.

Market analysts say Hyundai BNG Steel will inevitably rely on external financial resources as it lacks enough cash to cover the transaction. The company reported 27.9 billion won in cash and cash equivalents in its financial statements ended Sept. 30.

Some private equity funds are already preparing to propose a consortium to Hyundai BNG Steel to facilitate the deal. The company’s long-term credit rating is A0 (positive).

Internally, Hyundai BNG Steel looks to prefer finance leveraging and bond issuance. This is the first major M&A deal in the company’s history, meaning its internal M&A team needs help to enrich their experience. It has not yet begun discussions with stock brokers or commercial banks, but some say that Hyundai Motor, its parent company, may support Hyundai BNG Steel in the form of capital increase.

Hyundai BNG Steel may sell additional shares to its existing shareholders to raise capital, others say.

Hyundai BNG Steel is responsible for the production of stainless cold rolled steel sheets in the automotive manufacturing value chain of Hyundai Motor Group. It is the industry’s second largest player behind Posco in the country and 95 percent of its revenue comes from steel sheet business.

Since 2019, LG Hausys has been seeking to divest non-core businesses by contacting potential buyers individually. Major private equity funds such as MBK Partners, IMM Private Equity, and JKL Partners received a proposal. Global companies like Japan’s Toray and U.S. Avery Dennison once showed interest.

Its car materials and industrial film business posted an operating loss of 21.8 billion won over sales of 940.3 billion won in 2019. For the three quarters of last year, the division’s operating loss widened to 35.1 billion won on sales of 610.7 billion won. Investors pay attention to the division’s growth potential in differentiated parts for light-weight vehicles and carbon fiber reinforced plastic.

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