Shinsegae faces showdown with investors over SSG.com's delayed IPO

Korean retail giant Shinsegae Group's e-commerce unit SSG.com faces mounting pressure from investors to recoup the 1 trillion won ($727 million) investment made between 2019 and 2022 amid its delayed market debut hit by lukewarm sales in recent years.

According to industry sources on Tuesday, Shinsegae is in last-minute discussions with Affinity Equity Partners and BlueRun Ventures, the two private equity funds that are reportedly considering exercising a put option to sell back their stakes in SSG.com ahead of Wednesday’s deadline.

Affinity and BRV secured a 15 percent stake each in SSG.com in a deal signed in October 2018. The deal included a put option that requires SSG.com to repurchase the investors’ stakes at a premium price if its total gross merchandise value falls below 5.1 trillion won or the company fails to meet the conditions to make an initial public offering.

Shinsegae said the put option should not be exercised as SSG.com has already met the minimum GMV conditions agreed upon. But the investors reportedly argue that their put options remain valid, raising allegations that SSG.com has inflated transaction volume.

Shinsege’s E-Mart and Shinsegae Inc. own 45.6 percent and 24.4 percent, respectively.

"We are currently in active discussions with the investors," a Shinsegae official said without further elaboration. The official attributed SSG.com’s sluggish sales to intensified price competition with local rivals, especially after the COVID-19 pandemic. “SSG.com’s strategic focus has been reducing operating losses rather than elevating sales.”

Depending on the talks with the investors, it is also likely for Shinsegae to face lawsuits. Deepening the retail giant’s concerns is its own deteriorating financial stability.

Last year, E-Mart, the flagship unit operating the ubiquitous E-Mart discount stores, suffered its first annual operating losses, largely due to pandemic disruptions that led to the rapid growth of e-commerce rivals such as Coupang. SSG.com also recently announced an earlier retirement program for employees.

Shinsegae had attempted to merge SSG.com and Gmarket, another popular online shopping platform it acquired in 2021 for 3.4 trillion won, to seek business synergy, but the plans fell apart due to resistance from the investors who claimed that their stakes stayed within SSG.com only.

Other pricey acquisitions made in recent years, including the 300 billion won fashion platform W concept, the 130 billion won pro baseball team SSG Landers and the 300 billion won US Shafer Vineyards, also affected its cash flow negatively.

"Every acquisition should consider the sector's comparative advantage in the market and synergy with existing affiliates," a retail industry official said on condition of anonymity. "Had SSG.com capitalized on synergy with Gmarket earlier, when its market share was significant, perhaps it could have preempted the rise of giants like Coupang and AliExpress. However, given the industry's reliance on consumer differentiation, the prospects for recovery now appear slim at this juncture."

SSG.com, backed by Shinsegae’s extensive distribution network, was once considered one of the hottest IPOs with its market cap peaking at 10 trillion won. But pandemic disruptions have driven down the value to some 1 trillion won, leading to a prolonged delay in its market debut.

In the meantime, speculation grows that Shinsegae could divest stakes in lucrative affiliates such as Starbucks Korea and Shinsegae Food to secure cash in preparation for possible legal disputes with the SSG.com shareholders.