South Korea’s SK Group is investing $470 million in Vietnamese listed conglomerate Masan Group in a deal that will make it the largest shareholder in the company.
According to a Masan Group announcement on Wednesday, following the deal, SK will own 9.5 per cent in the Vietnamese entity. Masan plans to use the proceeds to fund its future growth initiatives, as well as to strengthen its balance sheet.
Masan will add up to $50 million of net earnings per annum next year, while gross debt to EBITDA is expected to decrease to 2.5x by this year-end. It also expects the core net profit to increase by at least 50 per cent this year and forecasts similar base case earnings growth momentum for the next fiscal year.
After this investment, the company will not issue additional shares to investors in three years.
Masan plans to consolidate cash by up-streaming free cash flows from its subsidiaries to build a strategic investment war chest and return capital to shareholders.
“The agreements will enable both parties to draw on each other’s strengths to accelerate Masan’s and SK’s respective growth strategies. The corporate groups aim to jointly pursue transformational business opportunities in Vietnam and to synergize existing business units,” Masan said in a statement.
It added that the partnership is expected to help the business deliver a high double digit growth in the coming years.
SK is one of the largest South Korean chaebols, with businesses across energy, chemicals, telecommunications, semiconductors, logistics and service sectors. Masan is also engaged in businesses such as mining, consumer goods, food and finance, which have been built up through M&A activity.
Masan said it will continue to seek M&A opportunities for long-term growth.
Woncheol Park, representative director, SK South East Asia Investment, commented: “Vietnam is an important foundation for our South East Asia strategy.”
Behind this $470 million investment is the aim to growing Masan’s consumer wallet share by five times to $100 per consumer per annum, Park said, indicating that the Korean major would probably inject more capital into the Vietnamese partner in the future.
Existing investors in Masan include Singapore sovereign fund GIC which is currently the second largest shareholder with a 5 per cent ownership, global alternative investment firm KKR, PENM Partners and the International Finance Corporation.
On a group level, KKR has invested the most significant amount of more than $600 million in the parent group Masan and its subsidiaries.