Rutter Associates Korea, a home-grown private equity fund, is in talks to acquire a 19.09 percent stake in Tongyang Cement & Energy from Tongyang International, the second largest shareholder of the cement manufacturer, according to an investment banking source on Thursday.

The deal is very likely to be closed at an estimated price of between 70 and 80 billion won ($70.9 million) based on the current market price.

Tongyang Cement shares were up 0.44 percent to trade at 3,445 won at 1:30 pm.

Tongyang International which is placed under court receivership has tried to sell its stake to improve financial health. In the previous auction held late last year, Rutter along with Sampyo Industry, the current majority shareholder of Tongyang Cement, showed interest but the deal fell through due to price differences. The court then changed the sale format into a negotiation-based contract and a final agreement is very likely with Rutter.

The transaction, if realized, would mean the end of the first round of industrial re-shaping in the domestic cement market. The industrial reshuffle began in 2015 when Sampyo became the new owner of Tongyang Cement by acquiring a 54.96 percent stake. Following the deal, Ssangyong Cement Industrial, then the market leader, and Halla Cement were sold to private equity funds Hahn & Company and Glenwood Private Equity, respectively, while Hyundai Cement was sold to a consortium of Hanil Cement, LK Partners and Shinhan Investment.

With the acquisition of Hyundai Cement, Hanil Cement elbowed out Ssangyong Cement Industrial to become the largest cement producer in terms of output and market share. Because of the oligopolistic nature of domestic cement market, economies of scale matter.

But current market order won’t likely last long. The PEFs will try to cash out on Ssangyong Cement and Halla Cement in a few years later. Any leading player who acquires Ssangyong Cement, which controls 20 percent of the market, could widen the gap with its closest competitor. Sale of Halla Cement, the fifth largest cement manufacturer, also could affect the market.

Rutter has built reputation as a corporate turnaround capital through funds pulled from National Pension Service and other institutional investors in 2014.

It invested money into car part makers like Keyang Electric Machinery, contributing to their growth. The PEF is also credited for its risk management for companies it acquired. It injected 30 billion won into Kosdaq-listed Natural Endotech on its growth potential, pulling the company out of a near collapse due to a fake ingredient scandal. It also acquired Ferrum Infra, a golf course operator, from cash-strapped Dongkuk Steel for about 30 billion won.

By Kang Doo-soon, Jeon Kyung-woon

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