Litigations pile pressure on Mirae Asset Group

Korean investment banking group Mirae Asset Group is being swamped by litigations at home and abroad, including one against China’s Dajia Insurance Group surrounding high-profile hotel deals in the United States, filings showed Monday.

As of the end of June, the total litigation costs incurred to brokerage house Mirae Asset Daewoo and its affiliates could exceed 7 trillion won ($6 billion) if the group loses all 35 lawsuits in which it is involved. The cost has gone up from 68.8 billion won at the of end of 2019. Litigation costs refer to the overall amount of money that is expected to be spent as a result of the court ruling, from costs incurred if the company loses the case to other pretrial preparations and court fees, among others.

The volume drastically surged over the course of six months in the wake of the legal action by Dajia Insurance Group to force proposed buyers of 15 hotels across the US, led by Mirae Asset Daewoo and Mirae Asset Global Investments, to complete the $5.8 billion payment in accordance with an equity commitment letter. Of the total, Mirae Asset Daewoo is responsible for payment of $1.5 billion under the agreement.

This far outstrips litigation liabilities of industry peers in the domestic market. Yuanta Securities Korea and affiliates are forced to pay up to a combined 1.7 trillion won if they lose their 14 suits, which is second most in the Korean financial industry.

These sums are way larger than those of major banking groups. As of end-June, the maximum size of litigation costs incurred by Hana Financial Group could be 502.7 billion won, with those of rivals Shinhan, KB, Woori and NH being no larger.

The Delaware Court of Charceny is expected to deliver a verdict on the US hotel deal this fall to decide whether the contract should be enforced, following a trial held in August between proposed buyer Mirae Asset and seller Dajia, formerly known as Anbang Insurance. Mirae Asset argued that Dajia is accountable for the deal collapse by withholding information about the alleged scam and trademark disputes surrounding one of the US portfolio assets. Dajia rebutted the claim, saying it had satisfied all terms.

The latent risk of losing the case has yet to be reflected in Mirae Asset’s accounting book. Mirae Asset Daewoo and affiliates have made provisions for some 680 billion won for the bad debts in a worst-case scenario, as of June.

On the other side, Mirae Asset Group has initiated 20 lawsuits to seek legal remedy, which could yield a combined 209.3 billion won in total.

A defeat, however, translates into Mirae Asset’s failure to bear the brunt of its botched financial decisions.

An ongoing case is associated with Doosan Infracore China Co. major shareholder Doosan Infracore’s failure to exercise the “drag-along right” for minority shareholders, including Mirae Asset Private Equity. The minority shareholders invested 380 billion won in DICC in expectation for an initial public offering in 2011, but a failure to do so led to a loss in the investment. The consortium including Mirae Asset Private Equity is awaiting a final ruling in Korea’s Supreme Court to see the viability of its call for Doosan Infracore to reimburse for the principal and interest for a breach of agreement.

Another is related to a Kospi listing of China Gaoxian Fibre Fabric Holdings, underwritten by Mirae Asset Daewoo and Hanwha Investment & Securities in 2011. The Chinese company, however, was suspended from trading on revelations of window dressing within two months after the listing.

Alongside Mirae Asset Daewoo’s financial damage from the deal underwriting, Mirae Asset was ordered by financial authorities to pay a fine of 2 billion won. The same penalty was slapped on Hanwha Investment & Securities.

A bleak outlook is ahead for Mirae Asset Daewoo as it awaits a final ruling, as Hanwha in the Supreme Court was ordered to pay such a fine earlier this year in a Supreme Court ruling, despite lower courts’ ruling in favor of the brokerage.

Moreover, Mirae Asset Daewoo was a consortium partner of Hyundai Development Co., a proposed buyer of Asiana Airlines until the deal’s termination by creditors.

With regards to a deposit payment of 250 billion won for the high-profile 2.5 trillion-won acquisition, the HDC-led investor group declared it would initiate a lawsuit against proposed seller Kumho Industrial.

In the meantime, Mirae Asset is demanding redemption of the $580 million deposit for the US hotel deal and has brought the case to court.

By Son Ji-hyoung (consnow@heraldcorp.com)