Korea to relax rules for PE-backed M&A

The Korean government is drawing up measures intended to loosen regulations that are crimping private equity-backed M&A, according to a statement from Korea's Ministry of Strategy and Finance.

“Regulations that restrict those who participate in M&As, such as private equity funds and strategic investors, will be eased at the fund creation and investment, management and sale stages of the M&A cycle,” the statement said.

Private equity firms will be permitted to acquire a company's entire business division, rather than just take a stake in the business, according to a Reuters report. In addition, private equity-backed companies will be allowed to list on the domestic stock exchange, which in the past the rules didn't allow.

Other planned changes are financial and tax incentives. “These measures will promote business restructuring according to regular market functions, and Korean economic dynamism will receive a boost as SMEs and venture startup investment grows,” the statement said.

The government believes that corporations in financial trouble could sell 10 trillion KRW (€6.8 billion; $9.4 billion) in assets.

Among the chaebols trying to shed units are Tongyang Group, which is on the brink of bankruptcy, and Hyundai Group, which announced plans to raise $3.1 billion by selling assets.

According to a recent AlixPartners study, one-quarter of 1,606 listed Korean companies are “at risk” of distress, meaning that they have a high probability of distress within three quarters.

About one-third of companies in the shipping industry face the highest risk, followed by the financial industry (31 percent) and construction and real estate (18 percent).

Asia’s private equity-backed M&A (ex-Japan) reached $8.3 billion in 2014 year-to-date, representing a 107 percent increase from the same period last year, according to Thomson Reuters data.

In a broader context, global private equity-backed M&A, which totaled $96.7 billion year-to-date 2014, had a 12 percent increase compared to a year ago and the best year-to-date period for private equity-backed M&A since 2007, according to Thomson Reuters data.