The airplanes flying to South Korea “have their business classes packed with the guys wearing Hermes suits,” said Stuart Kim, founder and principle of downtown Los Angeles-based Pacific Gemini Partners LLC, a money management firm specializing in South Korea and other Asian nations.

Passengers in the fancy duds are investment bankers, and the attraction is the good number of solid Korean companies that need only a restructuring on the capital side.

“What they need are equity swaps (substituting equity for debt on the balance sheet) or de-leveraging,” said Kim. “And American investment bankers, having gone through the cycle already here, are experts at this sort of financial re-engineering.”

Generally concurring with that assessment is R.M. “Dick” Torre, principal with Global Capital Markets Inc. based in West Los Angeles and Orange County. An inveterate traveler of the Asian markets, Torre said there are good opportunities, though he noted some of the conglomerate-type chaebols have companies up for sale “at prices they know nobody will pay.” That way, a chaebol can look like it is attempting to comply with government edicts to sell off assets, but still keep its holdings in the fold.

Even so, new laws allowing foreigners to own Korean companies will make this a hot market for some time, said Kim and Stewart though both expressed reservations about an Asian snap-back, as Japan remains caught in an economic spider web. A fix of the nation’s all-powerful bank system seems still far off.

“The Japanese are not suffering enough to make real reforms,” said Kim. “They have been in a recession that has lasted seven years. But they are running huge trade surpluses, so they don’t have to listen to the IMF or anybody else.”

If Japan does not grow and buy product, the Asian recovery will be hampered, said Kim and Torre. By the way, in dollar terms, the South Korean stock market rose 37 percent in October, and is up 19 percent in November.

Manufacturing bonds

The Industrial Development Authority of the city of Los Angeles last week named Dan Bronfman of Santa Monica-based Growth Capital Associates as its financial advisor.

Pending approval of the City Council, Bronfman will help the city in managing its industrial development bond (IDB) program. For the year ended June 30, the city issued $22 million of the tax-exempt bonds. The purpose of the bonds is to provide lower-cost financing to businesses that locate or expand manufacturing operations within the city of Los Angeles.

In essence, the program allows the city to borrow money tax-free and pass the proceeds along to borrowers.

“My job is to go out and market their IDB program, to qualify the projects, and to guide them through the process,” said Bronfman. “Get out there and capture the deals.”

Ninety percent of the clients Bronfman works with are manufacturers with sales from $8 million to $20 million. He will be compensated by fees due on the close of a financing. Usually, borrowers use funds to buy equipment, or buildings, or other fixed assets.

Bronfman foresees growth in the program. “We are targeting $25 million to $40 million for the next year,” he said.

Can Bronfman, who got his MBA from the Anderson School at UCLA, get a borrower a good deal? “Right now, (clients) are borrowing money for 20 to 25 years, at 5 percent variable rate,” he said. The rate would rise from 5 percent if interest rates go up, but down if rates decline further.

A Smart deal?

The Big-Board-listed Vernon-based retailer Smart & Final Inc. has dropped off the shelf; it stood at $26 a share in 1997, before plummeting to a low of $7 this August. Since then it has rebounded a bit, crossing over $10 a share last week.

Simply put, the problem is profits. The company earned $1.15 a share in 1996, but that fell to 51 cents in 1997, and is tracking toward 44 cents a share this year.

Next year, however, analyst projections are running higher to 88 cents per share, according to a consensus estimate. Perhaps driving earnings will be the company’s new “Plus” stores, which are larger, and better-stocked than existing stores, offering more fresh and meat goods.

Recently, Smart & Final added Phillip Hawkins, 47, as president and chief operating officer. Hawkins most recently worked for a New York grocer, but before that he was a 30-year veteran with Vons Cos. of Southern California, where he was senior vice president of store operations until Safeway Inc. acquired the company in 1997.

Even so, analysts remain mixed on the chain, which operates more than 215 outlets, mostly in California. There is ferocious competition from club warehouse retailers such as Costco, and, of course, the mega-supermarket empires such as Fred Meyer Inc.

But if Smart & Final hits the earnings projections, the stock may become attractive, given the kinds of price-earnings multiples seen on Wall Street. To paraphrase a comment made by Dick Torre of Global Capital last week, any company that trades today for below 15 times earnings has corporate herpes.

Quick notes

City of Commerce-based 99 Cents Only Stores Inc. is proving to be a star on Wall Street, with the stock last week trading in the $43-a-share range, roughly double that of a year ago. The chain, which now has a market cap of more than $1 billion, retails items for $1 or less, and operates largely in Southern California.

Roxanne Cheng, an analyst with Wedbush Morgan Securities in downtown Los Angeles, smiles when she writes about Gentle Dental Service Corp., the El Segundo-based provider of management services to professional corporations that employ dentists and orthodontists. This stock has been bitten hard on Wall Street; it was trading last week in the $6 to $7 a share range, off from a 52-week high of $12.88. It is merging with a rival, the Dental Care Alliance, so something of an industry roll-up is underway. Per-share earnings will rise to 48 cents in 1999, from 15 cents in 1998, estimates Cheng. After the merger, Gentle Dental should post annual revenues in excess of $221 million, she estimates. Cheng calls Gentle Dental a “buy,” and has a target price of $12 for the stock.

Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].