MBK Partners scraps $1.5 bn IPO of Korean retail REIT

  • 2019-03-15

Pedestrians walk past a Homeplus Co. store in Seoul, South Korea, on Thursday, Sept. 20, 2018. Lim Il Soon became the chief executive officer of Homeplus, a $9.7-billion-a-year discount-store operator, in 2017 after she built a reputation among buyout funds for being a turnaround wizard. Prior to that, she had been chief financial officer at four companies since 1998, a rarity in a country with the lowest female representation in the OECD. Photographer: Jean Chung/Bloomberg via Getty Images

MBK Partners has cancelled an initial public offering for a retail real estate investment trust (REIT) in South Korea due to a lack of demand, which was expected to raise up to 1.7 trillion won ($1.5 billion).

The South Korea-based private equity firm had planned to list Korea Retail Home Plus REIT I this month in what might have been the biggest public REIT in the country.

The REIT was launched last year for 51 stores of supermarket chain Homeplus which an MBK-led consortium acquired from British retailer Tesco plc for $6 billion in 2015.

With the rise of online shopping dimming the outlook for traditional retailers, a lack of large-cap public REITs seemed to add uncertainties to a billion-dollar REIT in a country where only six REITs are listed.

“We decided to withdraw the IPO on the conclusion that it would be difficult to get a fair value on the company,” a source of Korea Retail Home Plus REIT I said on March 14. “We will revisit the IPO later on.”

It submitted the cancellation notice to financial regulators on March 14, a day after completing the book building.

MBK had sought to price the IPO in a range between 4,530 and 5,000 won per share, near market values of two domestic REITs listed last year.

It offered a dividend yield target of around 7% for the retail REIT with a remaining lease term of 14 years on average.

The dividend yield for E KOCREF CR-REIT and Shinhan Alpha REIT, listed on Seoul stock exchange last year, is around 7% and 5.5% respectively, based on end-2018 results.

NO EXIT PLAN YET

MBK was understood to have planned to use the IPO proceeds to repay debt of the retailer.

Its withdrawal from the IPO may set back the exit from the South Korean retailer which lags behind e-mart of Shinsegae Corp.

But an MBK Partners source dismissed market talk about divestment, saying: “Now Homeplus, a giant retailer with sales of 9 trillion won, is in the stages of improving competitiveness, we are not considering divestment at this point in time.”

For the real estate industry, the cancelled flotation may weigh on the upcoming public offerings of other domestic REITs, and slow the government effort to boost the public REIT market.

NongHyup REITs Management Co. Ltd., part of NongHyup Financial Group and IGIS Asset Management Co. Ltd. plan to list REITs in 2019, based on around 1 trillion won worth of assets respectively.

As part of effort to funnel abundant market liquidity into indirect investment products away from the residential property market, the government unveiled a set of measures last December aimed at raising the appeal of public REITs to individual investors.

They include simplifying the IPO process of public REITs and loosening regulations on the establishment and listing of REITs, as well as introducing credible rating systems.

South Korean REITs, introduced in 2001, have an average capital of 91 billion won, a fraction of the 2.2 trillion won for Japanese counterparts and 1.9 trillion won for Singaporean REITs, according to the Ministry of Land, Infrastructure and Transport on March 11.

E KOCREF CR-REIT and Shinhan Alpha REIT have a market value of 303 billion won and 273 billion won, respectively.

The former closed at 4,775 won on March 15, with the latter trading at 5,740 won, around their IPO price of 5,000 won.

By Gowoon Yi and YH Hugh Jeong

ccat@hankyung.com

<Edited by Yeonhee Kim>

(Photo: Getty Images Bank)