South Korea’s private equity company STIC Investment plans to sell local leading biodiesel material maker Daekyung O&T, with BofA Securities as the underwriter, as reported by the Korean Economic Daily on October 29. South Korean major refiners like SK Innovation [096770:KS], S-Oil Corporation [010950:KS], and Hyundai Oilbank participated in the preliminary bidding. With those potential buyers, the sale of 100% shares of Daekyung O&T is expected to increase from the previous KRW400bn (USD341m) to KRW500bn (USD427m), including a 71.73% stake held by STIC Investment. Nevertheless, although Daekyung O&T occupies 50% of the South Korean biodiesel market, the biodiesel market size is much smaller than oil and gas and the target company’s operation sites are also small. In view of this, those large refiners are considering collaborating with private equity firms to acquire Daekyung O&T.
STIC Investment acquired Daekyung O&T for KRW94.5bn in 2017. After that, Daekyung O&T switched its main business from producing animal fats and vegetable oils to biodiesel. Amid the global ESG development trend, biodiesel, bioethanol, and other biofuels attract attention as a kind of eco-friendly renewable energy. Thus, Daekyung O&T’s operating profit increased from KRW6.4bn previously to KRW16.5bn in 2020, according to the report by Pulse.
South Korea’s government launched the Renewable Fuel Standard (RFS) program in July 2015, setting a mandatory mix ratio of biodiesel to diesel fuel for oil refiners, importers, and exporters, aiming at 5% since 2030. Currently, South Korea’s biodiesel consumption is 600,000 tons per year, and the total production capacity is 1m tons, which is expected to meet its 2030 consumption target. From a global perspective, South Korea did not be among the top biodiesel producers. The largest biodiesel producer is Indonesia with an output of 7.04m tons in 2019, accounting for 17% of the global total, followed by the US’ 14% and Brazil’s 14%. From 2009 to 2019, the compound annual growth rate of biodiesel production worldwide was 10.3% and the output in 2019 was 41.73 tons, up 13% YoY.