KKR buys Chevron pipeline stake with Korean pension fund

KKR, with South Korea’s National Pension Service, has bought Chevron Corp’s 23.44 percent stake in Colonial Pipeline, a U.S. oil pipeline company. The stake is worth around $895 million and was all cash. The South Korea National Pension Service is a large investor in private equity funds.

(Reuters) – Kohlberg Kravis Roberts & Co has teamed up with South Korea’s state-run National Pension Service to buy Chevron Corp’s stake in a top U.S. oil products pipeline company, in a deal that involves a buyout firm joining with a huge fund for a cross-border acquisition.

KKR and NPS did not provide any pricing details in the all cash deal, which closed on Oct. 8., with media reports estimating that Chevron’s 23.44 percent in Colonial Pipeline Company, was worth around $895 million (1 trillion won).

While the M&A pairing of a legendary private equity firm and a South Korean pension fund may seem unique, the two groups are very familiar with one another and are searching for similar deals.

NPS is a large investor private equity funds and New York-based KKR is among the largest and well known buyout funds. It was founded by two cousins and a Bear Stearns colleague, who are credited with launching the leveraged buyout industry in the late 1970s.

The pension funds and fund of funds that invest in private equity firms, called limited partners, have been seeking for years to invest directly into deals alongside the firms rather than through a general buyout fund, in hopes of a high return.

But such investments come with higher risks, as the exposure is to a single deal as opposed to ten or twelve.

“NPS has been increasing investments in risky assets and that’s in line with its long-term investment horizon, but now we are getting concerned that it’s taking more risk than it is required,” said Kang Sung-won, a researcher at Korea Economic Research Institute.

NPS, which manages 300 trillion won ($269 billion) in assets, and is the world’s fourth-biggest pension fund, said KKR would help manage the Colonial asset.

The fund has been diversifying away from bond-focused portfolios to put more weight on alternative and equity investments, it said in the statement.

NPS has been increasing investments in infrastructure assets and real estate in North America and Europe, including the $767 million purchase of Berlin’s Sony Center earlier this year.

DIVERSIFICATION

Alpharetta, Georgia-based Colonial Pipeline operates 8,900 km of oil pipeline running from Texas to New York. Chevron was one of five owners of the pipeline, which runs up the Gulf Coast to customers along the East Coast.

The acquisition marks first energy infrastructure deal by NPS and adds to a flurry of property deals that the fund has been doing in recent years.

Jun Kwang-woo, chairman and CEO of the National Pension Service, said the fund struck the Colonial deal to diversify its investments around the world and seek long-term, stable returns.

“The deal is part of our drive to diversify NPS’s investment and generate stable profit through increased investments in overseas infrastructure assets,” Jun said in a statement.

KKR has done a number of other deals in energy and infrastructure, including the $44 billion buyout of TXU Corp, now known as Energy Future Holdings Corp, in October 2007, with Texas Pacific Group and Goldman Sachs Capital Partners.

“The pipeline is an attractive infrastructure asset with a history of stable earnings and a high quality customer base,” Marc Lipschultz, global head of KKR’s Energy and Infrastructure business, said in a statement.

KKR first set up in Asia around five years ago, and has since struck a number of deals, including the 2009 buyout of Oriental Brewery in South Korea from Anheuser-Busch InBev NV for $1.8 billion. (Additional reporting by Michael Flaherty in HONG KONG) (Editing by Gary Hill and Lincoln Feast)