This article was displayed on the ChosunBiz MoneyMove site on Feb. 24, 2025, at 7:14 p.m.
Affinity Equity Partners, a private equity fund management firm that has acquired the top two domestic rental car companies, plans to raise approximately 1.3 trillion won in acquisition financing. The two companies' acquisition financing will be consolidated and received at once. With this recapitalization, Affinity is expected to lower the acquisition financing interest rate for SK Rent-a-Car.
According to the investment banking (IB) industry on the 24th, five financial companies, including Korea Development Bank, Woori Bank, KB Kookmin Bank, Korea Investment Securities, and Hana Securities, will participate as underwriters for the acquisition financing of LOTTE Rental and SK Rent-a-Car. KB Kookmin Bank previously acted as a joint arranging party when Affinity bought SK Rent-a-Car last year.
Affinity acquired 100% of the equity of SK Rent-a-Car from SK Networks for 820 billion won last August. In December of the same year, it signed a stock purchase agreement (SPA) to acquire a 56.2% equity stake in LOTTE Rental, held by Hotel Lotte and Busan LOTTE Hotel, for a total of 1.5729 trillion won. The total corporate value was assessed at 2.8 trillion won. LOTTE Rental and SK Rent-a-Car are ranked first and second in market share in the domestic rental car market, respectively.
Although Affinity's acquisition of SK Rent-a-Car was completed last year, it appears that acquisition financing was hardly raised at the time. An IB industry official noted, "Although a loan agreement was signed, some limited partners (LPs) requested to initially contribute in equity, which delayed the execution of the acquisition financing." Initially, after contributing the acquisition funds through a capital call, it was decided to return the funds to the LPs in the form of acquisition financing recapitalization.
Another industry official remarked, "Affinity likely needs to lower the interest rate as it spent too much money to acquire the two companies." Last year, when Affinity entered into an acquisition financing contract with KB Kookmin Bank and KB Securities for SK Rent-a-Car, it reportedly set the interest rate in the mid-to-high 6% range. Now, as interest rates have generally fallen significantly, it is expected to decrease to the mid-5% range.
When Affinity was acquiring the two companies, there were opinions in the industry suggesting that the corporate value was overvalued. At the time it decided to acquire SK Rent-a-Car, the market capitalization of the industry leader LOTTE Rental was only 960 billion won, leading to allegations that SK Rent-a-Car's corporate value was overestimated. Given that SK Rent-a-Car's sales and used car sales revenue are at half the levels of LOTTE Rental, it was argued that a valuation around half is more reasonable.
In the case of LOTTE Rental, it was agreed to purchase it at 77,115 won per share, which is 2.3 times the market price at that time. As a result, the market has shown skepticism about whether Affinity can resell the two companies at an appropriate price in the future.