Prostar, BlackRock snap up $500m Korean gas utility

The midstream energy-focused firm is eying a fresh fundraising round by the end of this year.

A team led by Prostar Capital has acquired over 95 percent of Kyungnam Energy, the largest independent, pure-play city gas distributor in South Korea.

The deal’s size was not disclosed, but local reports suggest the stake was valued at $500 million. 

John Troy, a partner at Prostar, declined to comment on transaction value but told Infrastructure Investor that the investment is a “fairly large” one. 

The acquiring consortium comprises the Prostar Asia-Pacific Energy Infrastructure Fund, together with funds and accounts managed by BlackRock Infrastructure Solutions Group. Prostar led the purchase on behalf of the team and will manage the group’s investment going forward. Financing was provided by Korea Development Bank and KEB-Hana Bank. 

Prostar Asia-Pacific Energy Infrastructure Fund is a $400 million closed-ended investment vehicle, including co-investment commitments. Closed in the last quarter of 2016, the fund focuses on Asian midstream energy assets with a high-teen return target, according to Troy. The vehicle’s LPs include Korea’s SK Holdings, Washington State Investment Board and Malaysia’s RHB Capital. 

Around 60-70 percent of the capital has now been deployed, Troy said. He expects to complete one or two more deals in the coming months and looks to start a new round of fundraising by the end of this year. He declined to elaborate further on future fundraising plans. 

In addition to Kyungnam Energy, the fund’s portfolio comprises a range of oil storage terminals across China, South Korea, Indonesia and the UAE. 

“The investment is an attractive one because of the asset’s stable cashflows and strong growth prospects under a regulated framework in an OECD economy. The company has outperformed its peers in the past few years and provides upside opportunities,” commented Troy. 

Kyungnam Energy has an exclusive license to supply gas to nine cities and counties in Gyeongsangnam-do province in the southeast of the Korea peninsula, including the area’s two largest cities, Changwon and Gimhae. The company supplies gas to over 600,000 residential, 900 industrial and 50,000 commercial customers in an area which contributes 6.5 percent of the country’s annual GPD.

Total gas demand in the province is expected to grow at more than 2.8 percent annually in the years to 2020, according to the Korea City Gas Association. Troy added that Korea’s willingness to replace coal by gas in its power mix will provide opportunities to gas-related and renewables businesses. 

The Korean company also owns six gas-filling stations for vehicles and plans to build new ones as more vehicles switch to natural gas in the future.