'China fear' resurfaces as Affinity controls local rental car market amid BYD‘s Korean debut

An illustrative image features a car positioned above a black screen displaying the BYD logo. (Getty Images)
An illustrative image features a car positioned above a black screen displaying the BYD logo. (Getty Images)

Affinity Equity Partners, the buyout firm that has been on a long shopping spree in Korea, last week made a rare public statement: "We are not a Chinese company."

"We lack a centralized headquarters, functioning through several regional offices," the company clarified. "Singapore serves as our de facto headquarters for back-office operations, while South Korea handles the largest share of funding and investments."

Affinity asserted that its investors are primarily global pension funds and institutional investors from the US and Europe, explicitly stating that there are no Chinese nationals among its partners or any connections to the Chinese government.

The firm emphasized that framing it as a Chinese-linked entity "distorts facts and could harm its investments and portfolio," adding that it would consider legal action against further misinformation.

Is Affinity Chinese?

The short answer is "no."

Affinity was established in 2002 when UBS Capital Asia Pacific, the private equity arm of Switzerland’s UBS, was spun off as an independent firm. It was founded by Tang Kok-Yew, a Malaysian national who had been the UBS Capital Asia Pacific chair, alongside other senior UBS partners.

Since its inception, Affinity has focused on the Asia-Pacific region, becoming one of the largest independent private equity firms in the region with $14 billion in assets across 11 countries. Despite having offices in Hong Kong, Singapore, Seoul, Beijing and Sydney, the firm refutes being labeled "Hong Kong-based," a stance it reiterates when addressing recurring "China fears."

A private equity insider, speaking on condition of anonymity, noted challenges in defining a private equity firm’s nationality: "There are claims that the founder, Tang, is a Chinese Malaysian and that the original headquarters were in Hong Kong. Since a private equity firm's decisions are often influenced by the leadership of its partners, people tend to identify the firm with the location of its base or the nationality of its partners."

Even if Affinity receives Chinese funding, operational decisions remain independent, he noted. "Investors entrust money to private equity firms on the condition that decisions are made autonomously. The idea that a private equity firm would act in China’s interest due to Chinese investment is unfounded."

Why the fuss over its origin?

Rumors surged recently with Affinity's expanding role in Korea's rental car market. In August, it acquired a 100 percent stake in SK Rent-A-Car and is finalizing its purchase of a 56.2 percent stake in Lotte Rental. The two deals are worth about 2.4 trillion won ($1.65 billion) combined.

The two firms, which are the top two players in the market, command a combined market share of over 37 percent. With the Lotte deal soon to be completed in the coming weeks, the deals give Affinity a dominant position in the industry.

Concerns grew over suggestions that Affinity’s investments were aligned with Chinese electric vehicle giant BYD's Korean debut this week. Several media outlets have labeled Affinity as "Chinese capital," raising concerns that Affinity could use its rental car platforms to distribute BYD vehicles and facilitate their entry into the Korean market.

However, Affinity strongly denied these claims. "It is not true that Affinity is collaborating with BYD for its expansion into the Korean automotive market. There have been no discussions or plans to work with BYD or any Chinese automaker, nor are there any purchase plans," the firm stated.

Chinese money: What‘s the deal?

While Affinity has denied Chinese connections, critics argue that private equity firms’ profit-driven nature leaves room for external influence.

"Whether or not Affinity intends it, its ownership of major Korean rental car operators coincides with BYD’s market entry, making it vulnerable to external pressures," said Kim Pil-soo, a professor at Daelim University's future automotive engineering division.

He cautioned that foreign dominance, fueled by competitive pricing, could hinder local firms' growth and innovation, particularly in advancing technologies like AI-powered car-sharing.

However, other experts downplayed such concerns. "South Korea’s apprehension over Chinese capital typically stems from fears of technological leakage. Yet, unlike industries crucial to the national economy, the rental car sector poses a minimal risk in this regard," said Lee Jeong-whan, an associate professor at Hanyang University's College of Economics and Finance.

Strategic shift for survival

Affinity has increasingly focused on "value creation" as its core investment strategy, a shift explained by the firm's Korean head, Charles Min, in a recent interview: "In the past, uncovering hidden gems in the Korean market was enough. Now, polishing these gems into treasures has become critical."

Rather than merely enhancing individual companies, Affinity is acquiring multiple businesses, gaining leverage in negotiations and capitalizing on economies of scale.

This shift follows challenges with underperforming investments like Yogiyo, LocknLock and Burger King Korea. Legal disputes, including an ongoing put option issue with Kyobo Life, have underscored the need for a more refined approach.

Affinity is considered one of the most successful foreign investment firms here, generating substantial margins from buyouts of companies like TheFaceShop, HiMart, Oriental Brewery and Loen Entertainment. The sales of OB in 2014 and Loen in 2016 reportedly earned the firm over 5 trillion won in combined profits.

In line with its evolving strategy, Affinity is reportedly shifting its focus from small stake investments to full buyouts.

Hwang Yong-sik, a business management professor at Sejong University, viewed this move as a response to the need for a more stable management environment.

"The Korean market, especially in consumer sectors like rental cars, is challenging for foreign investors due to the complex psychology of consumers, labor-management issues and strict regulations. This underscores the understanding that survival here requires an established management system," Hwang said.

By Choi Ji-won (jwc@heraldcorp.com)