Taeyoung Group may sell key assets for survival

Taeyoung E&C’s Office Building in Yeouido, Seoul. [Photo by Kim Ho-young]

With South Korea’s Taeyoung E&C finally filing for a workout in the wake of its real estate project financing (PF) crisis, the industry’s attention has turned to what kind of self-rescue efforts will unfold at the group level. Financial authorities and creditor banks have already said that they will discuss a business normalization plan under the premise of intense self-rescue efforts by the company’s majority shareholder.

TY Holdings, the holding company of Taeyoung Group, is expected to sell Ecorbit, the group’s highly profitable environmental company, as part of its self-rescue efforts. According to a government press release on Thursday, Taeyoung Group and its key shareholder have submitted additional plans such as selling affiliates and providing asset and equity collateral for the workout, in addition to self-rescue efforts of more than 1 trillion won ($776 million), and main creditor KDB is in the process of finalizing the plans.

Ecorbit, formed through a merger between Taeyoung Group’s TSK Corporation and the foreign investment fund Kohlberg Kravis Roberts (KKR)’s Eco Solution Group (ESG) in 2021, specializes in waste disposal, medical and industrial waste incineration, and recycling. With a reported revenue of 642.7 billion won and an operating profit of 120.9 billion won last year, the company boasts an operating profit margin of 18.8 percent.

As Ecorbit is a joint venture between Taeyoung Group and KKR, the latter’s consent is required for the divestment. Taeyoung Group had already secured a 400 billion won loan from KKR earlier this year at 13 percent APR, pledging part of its stake in Ecorbit as collateral. More recently, the group sold Taeyoung Industry to KKR for 24 billion won to secure liquidity.

Though Ecorbit’s market value is estimated at about 1 trillion won, differences in valuation perspectives among potential buyers and sellers are anticipated amid a sluggish M&A market. Considering KKR’s involvement in Taeyoung Group’s liquidity enhancements and previous transactions, speculation arises that KKR might acquire the remaining stake in Ecorbit. KKR’s potential direct acquisition of the remaining stake could facilitate a transaction without the involvement of a brokerage firm, a strategy previously employed in the sale of Taeyoung Industry.

Observations suggest potential divestments in other sectors within Taeyoung Group, notably leisure (BlueOne Resort and Golf Links) and miscellaneous businesses (Moongori, Lee & S Sports), apart from environmental (Ecorbit), broadcasting (SBS), and construction (Taeyoung E&C) sectors. Previously, Taeyoung Group has sold off some of its miscellaneous businesses, including Taeyoung Industry and PT Silo, to secure liquidity for Taeyoung E&C.

Financial authorities will likely use the extent of the donations by the company’s majority shareholder to weigh the company’s will to turn around or not.