KKR and Carlyle compete for Tesco’s South Korean business

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  • Sale could be Asia’s biggest private equity deal ever
  • Buyers need to tackle S.Korea’s crowded retail market
  • Sale to help Tesco cut debt, fund turnaround plan at home

Asia-based Affinity Equity Partners has linked up with U.S. private equity firm KKR & Co, while Carlyle Group has joined hands with Singapore’s GIC, the people said.

And North Asia-focused private equity firm MBK Partners will seek equity funding from South Korea’s National Pension Service to bid for the unit, said the people, who declined to be identified as the sale process was confidential.

The forming of the teams by the private equity firms reflects the huge size of the deal, which could potentially be the second-biggest merger in the Asian consumer sector, and the recognition that risks need to be spread because of the tough nature of the South Korean retail market.

KKR, MBK, GIC, National Pension Service and Tesco declined to comment. Affinity and Carlyle did not offer a comment.

Tesco, Britain’s biggest supermarket group, whose credit rating was cut to “junk” status by Moody’s and S&P in January, is battling to recover from an accounting scandal and reverse its market share losses in Britain to discount chains Aldi and Lidl. The sale of the South Korean unit is the biggest divestment Tesco is making to improve its financials.

Tesco hired HSBC for the sale of the unit, Homeplus, and in July shortlisted Affinity, Carlyle, Goldman Sachs’s private equity arm, KKR and MBK Partners, sources have said.

It was not immediately clear if Goldman was part of any bidding group. The U.S. investment bank previously declined to comment on being part of the bidding for Homeplus.

Orion Corp, a non-private equity suitor, was not shortlisted but remains interested in the sale, an Orion official said.

The final bids for the business are due on August 24, Reuters previously reported.

Homeplus Co Ltd is Tesco’s largest business outside Britain, with annual revenue of 7.05 trillion won ($5.9 billion) in 2014. It has more than 400 stores and 500 franchise stores.

Homeplus’s property holdings, consisting mainly of stores, had a book value of 3.09 trillion won as of the end of February, according to a regulatory filing.

($1 = 1,187.7400 won)

(Reporting by Joyce Lee and Kane Wu; Additional reporting by Saeed Azhar in SINGAPORE and Prakash Chakravarti in HONG KONG)