Korean retail conglomerate E-Land Group’s M&A drive has raised concerns among investors that its aggressive growth strategy may deteriorate its financial health

2013-10-04 17:47

E-Land’s M&A drive draws concern

By Kim Tae-jong
E-Land Group’s merger and acquisition (M&A) drive has raised concerns among investors that its aggressive growth strategy may deteriorate its financial health. The group, a mid-tier conglomerate specializing in the fashion, leisure and retail sectors, is expected to acquire a resort in Pocheon, Gyeonggi Province. This will, if successful, be the group’s seventh M&A deal this year. According to industry sources, E-Land has recently signed a memorandum of understanding to acquire the Bears Town Resort as part of its efforts to strengthen its leisure business.It plans to complete the deal within this month after a thorough evaluation of the resort. It will first acquire about half of the stake from Yeji Corp. which holds a 98.8 percent stake in the resort and acquire the rest by 2019.
Analysts suggested that the group should stop seeking growth through M&As and focus on improving its financial soundness.
The credit rating agency Nice Investors Service said in its recent report that its financial health has deteriorated despite its good business performance since 2010, when the group started to aggressively acquire troubled firms.
As of June this year, the group’s outstanding debt stood at 4.35 trillion won, with its debt ratio at 390.4 percent and debt dependency rate 59.9 percent.
“It’s hard to upgrade ratings of affiliates of the group despite their good business performance, unless they decrease the amount of debt,” Kim Young-taek, an economist at the credit rating agency, said.
“We have focused on the fashion and retail business, but we will keep adding new business categories, such as leisure, food and entertainment,” an official from the group said.
The group has continued to expand its size through M&As by taking over more than 20 companies since 2009.
Most recently, it acquired local hotels including Waikiki Hotel in Chungju, North Chungcheong Province, Daegu Prince Hotel and Core Hotel in Jeonju, North Jeolla Province.
Last year, it also acquired overseas resorts the Pacific Island Club and the Palm’s Resort in Saipan.
The group stressed that the underlying logic in its M&A strategy is to acquire dying firms and revive and transform them into the group’s growth engines.
“What E-Land can do well is to buy an unsuccessful firm and revive it with new ideas,” E-Land Vice-chairman Park Sung-kyung said during a news conference early this month. “I want to inject vigor into hotels with few guests and shabby department stores, and also help contribute to the local economy.”

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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