KCGI CEO Kang Sung-boo (File photo by Eun-Koo Kang)
South Korean private equity firm KCGI Co. is likely to acquire a small local brokerage house Hanyang Securities Co. for 244.9 billion won ($179.8 million), although financial authorities may block the takeover amid talks over an illegal practice in the deal.
The securities firm said on Friday its top shareholders — Hanyang University Foundation, Paik Nam Tourist Co. and The Christian Newspaper — selected the Seoul-based activist fund KCGI as a preferred bidder to sell their combined stake of 29.6% at 65,000 won per share, more than quadruple of its closing of 15,580 won on the day, in a regulatory filing.
The foundation is set to sell 11.3% out of its 16.29% stake, while its affiliated Paik Nam and the newspaper are poised to unload all of their stakes of 10.85% and 7.45%, respectively. After the deal, the foundation and its Chairman Kim Jong-ryang will remain the second-largest shareholder with about a 9% stake.
Hanyang Securities, considered as a powerhouse of investment banking and bond sectors, reported an operating profit of 46.3 billion won in 2023, up 24.5% from the previous year. The country’s 28th largest brokerage house by equity capital earned 116.2 billion won in 2021 thanks to strong profits from property investments.
KCGI expects the acquisition of Hanyang Securities to expand its business into the sell side. The private equity firm took over Meritz Asset Management Co., currently KCGI Asset Management, in 2023.
Hanyang Securities’ headquarters in Yeouido, Seoul (File photo by Eun-Koo Kang)
STOCK PARKING TALKS
KCGI has been touted as a strong candidate for the brokerage house among bidders including a local fashion retailer LF Group and a consortium between KL & Partners and HXD Hwasung Development Ltd.
The private equity firm hired Hanyang University Foundation Chairman Kim’s son while leaving a minority stake in Hanyang Securities to the foundation and the chairman instead of purchasing all of the foundation’s 16.29% stake, which could bring a management premium.
That caused talks of stock parking, the illegal practice of selling shares to another party with the understanding that the original owner will buy them back after a short time, industry sources said. Neither KCGI nor sellers were available for comments on the controversies.
South Korea’s financial regulators are closely watching the deal.
“We are well aware of the talks of stock parking in the acquisition process of Hanyang Securities,” said a Financial Supervisory Service official. “We will thoroughly check the deal once a major shareholder eligibility review is requested.”
Financial authorities, which assess the eligibility of financial companies’ owners through the review, are expected to ban KCGI’s takeover of Hanyang Securities if they find any illegal activities such as stock parking in the deal.
By Ji-Eun Ha and Ik-Hwan Kim
hazzys@hakyug.com
Jongwoo Chon edited this article.
