Kyobo Life Insurance Co., South Korea’s third-largest life insurer, is in talks with some of its financial investors (FIs) over ways to help them exit from their investments in Kyobo even below their initial investment costs.
According to investment banking industry sources on Tuesday, Kyobo Life Chairman Shin Chang-jae is in under-the-table negotiations with Affinity Equity Partners and Singapore’s sovereign wealth fund GIC over a possible sale of their stakes to Shin at 230,000 won ($161) a share, below their original purchase price of 245,000 won – a price before a stock split.
Affinity and GIC hold 9.05% and 4.5% of Kyobo Life, respectively.
Sources said discussions remain tense, as Affinity and GIC insist that if Shin acquires shares from other FIs at a higher price in the coming months, their deal should be adjusted accordingly.
Meanwhile, while awaiting the result of an ongoing arbitration process, other investors, including IMM Private Equity, remain firm that no sale should occur below 310,000 won.
The FIs, including Affinity, GIC, EQT Partners and IMM PE, invested a combined 1.2 trillion won in Kyobo Life in 2012.
Following a lengthy legal battle over a put option exercise dispute, they are awaiting the fair market value (FMV) assessment report by EY Hanyoung, an appraisal firm designated by Shin.
The investors’ put option price is 410,000 won per share, while Shin hopes to lower the price when he repurchases shares from them.
If the fair market value assessed by EY Hanyoung deviates by more than 10%, a third-party firm will conduct another valuation process.
The arbitration ruling requires Shin to set the put option price at either the FMV or the original investment price of 245,000 won – whichever is higher.
RIFT IN INVESTORS’ EXIT PLANS
The divergence among the Fis’ exit plans stems from their differing financial positions.
Affinity invested 454.5 billion won, securing 255 billion won, or 56% of the total, in acquisition financing, which it later refinanced while benefiting from dividends.
Industry watchers estimate Affinity’s financing costs at around 170,000 won per share.
Similarly, GIC, which invested 226 billion won without leverage, has a low average cost per share, giving it room to accept a discounted buyout, sources said.
EQT PARTNERS
Sources said Shin has also approached EQT Partners, which holds a 5.23% stake in Kyobo Life, with a 230,000 won per share offer.
However, EQT’s circumstances differ from those of Affinity and GIC.
Having initially invested 262.4 billion won, EQT borrowed 163 billion won a year later and refinanced part of its holdings, taking out additional debt at a 7% interest rate.
Its current outstanding debt stands at 263 billion won, meaning its break-even share price is estimated at 280,000 won.
While EQT is known to be open to selling even at a loss, its lenders – who hold approval rights for any sale – are unlikely to agree to a transaction below 280,000 won.
Changes in leadership following Affinity and EQT’s investment in Kyobo Life have also become a key variable.
At Affinity, Vice Chairman Lee Cheol-joo and former Korea head Lee Sang-hoon, who led the investment, have both left the firm.
Similarly, Baring PE, which was acquired by EQT, has also seen its key partners leave the firm.
IMM PE
Unlike other Kyobo Life investors, IMM PE remains unwilling to settle at a lower valuation.
Having invested 262.4 billion won, with significant debt financing and earlier dividend distributions, IMM’s outstanding acquisition loans now stand at 200 billion won.
Its key backers include Korea’s pension fund, the National Pension Service, and other local institutional investors, which makes it politically and strategically difficult to exit below 310,000 won per share.
Industry officials said IMM PE needs to exit at 310,000 won per share, at minimum, to prevent losses for its limited partners (LPs).
Shin has raised his stake in Kyobo Life by recently acquiring a 5.33% stake from Affirma Capital, bringing his total shareholding to 39.11%.
He has secured 200 billion won in financing from Shinhan Investment Corp. and Korea Investment & Securities Co., using his shares as collateral.
If he successfully buys out stakes held by Affinity and GIC, his shareholding will reach 52.66%, giving him outright control of the insurer.
By Jun-Ho Cha
chacha@hankyung.com
In-Soo Nam edited this article.
