Kyobo Life shareholder feud intensifies on unfulfilled IPO

A foreign investor group of South Korea-based Kyobo Life Insurance is in hot water as its plan to exit from the insurer faces a setback after an indictment of its officials, while its demand for an initial public offering by Kyobo Life since 2012 remains unfulfilled to this day.

Key officials of the international investor group, led by Hong Kong-based private equity firm Affinity Equity Partners, and Seoul-based accounting firm Deloitte Anjin have been indicted by Korean prosecutors for allegedly mispricing the shares subject to “put options” -- under which the investor group gains the right to sell its Kyobo Life stocks to Chairman Shin Chang-jae.

This comes after Kyobo Life sued the parties concerned last year as foreign shareholders attempted to exit from Kyobo Life for 2 trillion won ($1.8 billion) in 2018. In response, the consortium accused Shin, who is the largest shareholder of the company with 33.78 percent ownership, of fraud on Jan. 13.

Following an ultimatum in March 2018, the investor consortium exercised the put option Oct. 23, 2018, under a 2012 contract stipulating that the investor group could ask Shin to buy its 24 percent stake if Kyobo Life failed to go public by September 2015.

The fair market value of each share of the privately-held company was set at 409,912 won by accounting firm Deloitte Anjin, a South Korean unit of the New York-based accounting firm, in comparison with domestic market competitors’ stock price.

Kyobo has argued that the strike price suggested by the investor consortium was inflated, by failing to adequately set a time period to calculate it, according to disclosures. Kyobo insisted that the strike price had to be calculated within a 12-month period of the date when the investors exercised the rights to sell. This shows a contrast with Deloitte Anjin’s estimate based on a 12-month period ending June 2018, when the latest financial statement was available.

Under Kyobo’s suggestion, the strike price -- or Shin’s financial burden -- might have gone significantly lower, given that the stock value of its listed competitors such as Samsung Life Insurance and Hanwha Life Insurance began to gradually depreciate during the second half of 2018.

Equity firm Affinity expressed regret over the indictment of its individuals. Shin could have nullified the investor group’s estimate of its own strike price, simply by hiring an accounting firm and coming up with its own estimation of a strike price, which Shin boycotted instead, the firm said Thursday.

If the gap between the two strike price estimates had been larger than 10 percent, a third-party assessor will take charge of the valuation process under the contract, Affinity said.

“Our position that the relevant valuation was conducted legitimately and in line with industry common practices, remains unchanged,” Affinity said in a statement.

Kyobo Life said in a statement that Shin had expressed willingness to negotiate the strike price to Affinity, but soon refused to negotiate after the Affinity-led group set its strike price.

“It is imperative to raise questions about Deloitte Anjin’s unreasonable fair market value of (Affinity-led consortium’s shares) and minimize damage done to the company,” Kyobo Life said.

Meanwhile, Affinity argued that the core issue of the case should be the ongoing international arbitration it filed against Kyobo Life with the International Chamber of Commerce over Kyobo Life’s failure to proceed with the IPO in a timely manner. Another issue of focus should be the chairman’s failure to buy the investor group’s shares under the put option, instead of disagreements over how the share prices of the put option are calculated. Affirma Capital, a spinoff of Standard Chartered with 5.33 percent ownership in Kyobo Life, is engaged in a similar feud with Shin and is awaiting international arbitration.

“We are deeply concerned and feel great regret that this indictment aims to cloud the key issues of the international arbitration,” Affinity said.

The Affinity-led investor group purchased Kyobo Life’s 24 percent stake in 2012 from Daewoo International for 245,000 won per share.

Other major Kyobo Life shareholders include investment firm Corsair Capital and institutional investor Ontario Teacher’s Pension Plan.

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