MBK sees new opportunities in China's regulatory risk

China's regulatory crackdown on Chinese technology and private education companies is driving up the level of volatility and creating mispricing in their stock market, but the disruptions in the market will provide more investment opportunities for private equity firms, said MBK Partners founder and Chairman Michael Byungju Kim.

MBK is now preparing special situations investments for companies not properly priced in the market, betting on the expansion of China's middle class. The limited scope of corporate lending by Chinese banks will make more room for PEFs to invest in the world's second-largest economy as well.

“We welcome such disruptions in the market. Such disruptions drive up the level of volatility, which in turn impacts the pricing," Kim said last week in his first media interview in eight years.

"I believe MBK has a better ability than any other firm in pricing ... Last week and this week, we saw a lot of new investment opportunities rising from such disruption. But we believe the door will close sooner than our expectation, with the market trying to normalize itself quickly.”

The interview was conducted after he announced the donation of 30 billion won ($26 million) of his personal wealth to the Seoul Metropolitan Government for building a public library named after him.

In late July, the Chinese authorities unveiled measures to ban companies that teach school curriculum subjects from making profits, raising capital or listing on stock markets worldwide, and prevent them from accepting foreign investment. The measures sent their share prices plummeting.
 
Last week, a Chinese daily affiliated with China’s state-run Xinhua news agency called on the country’s game developer Tencent Holdings Ltd. to curb minors’ access to its flagship video game Honor of Kings, calling the popular game an “electronic drug” and a “spiritual opium.” The article pulled the share price of Tencent sharply lower. 

FOCUSED ON DOMESTIC SALES-ORIENTED FIRMS

With $24 billion in assets under management, the North Asia-focused private equity firm will continue to put domestic sales-oriented companies at the top of its target list across South Korea, China and Japan. Kim noted that the three countries have stable economic conditions and growth potential.

In particular, MBK will zoom in on companies with strong cash flow. But it will not venture into unfamiliar areas or startups such as metaverse platforms and non-fungible token ventures, which are emerging as the hot investment areas for venture capital firms.

“I haven’t reviewed any investment options in those segments yet. I don’t have deep knowledge in those areas," he told reporters.

“We never put money into areas we do not know. The lessons learned during my 23-year experience as a PEF investor is don’t look at the sectors I don’t know."

In South Korea, MBK has recently pulled out of biddings for companies of which the valuation has skyrocketed. But given the country's economic dynamism and technology development, there are still plenty of buyout candidates, Kim said, likening South Korea to Google and Facebook in the 21st century.

He emphasized the importance of due diligence for which MBK began taking the environmental, social and governance (ESG) themes into account.

"We don’t invest in companies that fall short of the ESG standards. They are good in terms of profitability too,” Kim said, referring to the companies that meet the ESG requirements.

To read the transcript of his interview, click here.

Write to Chae-yeon Kim at why29@hankyung.com
Yeonhee Kim and Daniel Cho edited this article.