Yuanta Securities, Arranger of Acquisition Financing for PEF, Sued Over Early Enforcement of Collateral Rights

[Asia Economy Reporter Jang Hyowon] Yuanta Securities, which arranged acquisition financing for a management participation private equity fund (PEF), has become embroiled in a lawsuit. This is due to the execution of a pledge on collateral before the loan maturity. The PEF side claims that the collateral was seized based on an unreasonable clause demanding full repayment of the loan balance before maturity. On the other hand, Yuanta Securities insists that sufficient time was given and proper procedures were followed.

According to the investment banking (IB) industry on the 29th, Springhill Green Limited Liability Company signed a contract on November 14 last year to acquire 55.5% of the shares of waste disposal company E&Company for 32 billion KRW. They raised 8.5 billion KRW in equity capital and 23.5 billion KRW through acquisition financing. Yuanta Securities was in charge of arranging the acquisition financing.

E&Company is a waste disposal company established in 2001 in Gumi-si, Gyeongbuk Province. Its sales increased by 148.9% over two years, from 13.1 billion KRW in 2017 to 32.6 billion KRW last year. Its operating profit margin also reached 51.7%. The company has a business model capable of stable growth and high margins due to high entry barriers in the waste market.

Subsequently, in April, Springhill Green signed a contract to transfer E&Company shares to Terasem’s subsidiary Terashin Renewable Energy, a KOSDAQ-listed company. They received 3 billion KRW as a deposit, which was used to repay the acquisition financing. However, the contract was canceled as the balance was not received, and the acquisition financing maturity was extended to September 18.

Before maturity, on September 10, Springhill Green found a new buyer for E&Company and signed a contract to transfer shares for 31 billion KRW. The 6.6 billion KRW received as a deposit on that day was fully used to repay the loan.

Now, with 16 billion KRW remaining on the loan balance, Yuanta Securities extended the maturity by one more month on September 18. However, they added a new clause to the contract change conditions stating that “all balance and interest must be deposited into the designated account by September 29,” a condition for loss of benefit of time that did not previously exist. Although the maturity was October 18, this clause effectively required full repayment before then.

Ultimately, on September 29, the day before the Chuseok holiday, Yuanta Securities invoked the loss of benefit of time clause and confiscated all 55.5% of E&Company shares pledged as collateral. Springhill Green lost the shares without recovering the total 18.1 billion KRW, including 8.5 billion KRW of equity capital invested at acquisition and 9.6 billion KRW repaid early.

The next day, Yuanta Securities transferred E&Company shares to N&PI for 16 billion KRW. N&PI is known to be a company jointly invested with Yuanta Securities and Hans Jaram, the developer of ‘Hannam The Hill’ in Hannam-dong, Seoul.

In response, Springhill Green has filed a lawsuit demanding the return of stocks and convertible bonds from the special purpose company (SPC) established by N&PI and Yuanta Securities.

Springhill Green claims, “While the sale contract was ongoing, Yuanta Securities, the arranger of acquisition financing and sales advisory, inserted a strange loss of benefit of time clause and seized E&Company. The fact that the shares were transferred to the interested party N&PI at a price significantly below the value of 16 billion KRW is evidence.”

Yuanta Securities responded, “In April, Terasem received only a 3 billion KRW deposit and took over management rights of E&Company, but the contract was canceled and Terasem continued to control management rights. The company that signed the second sale contract had only 1 million KRW in capital, and despite requests for proof of funds, none was provided.”

They added, “E&Company had many contingent liabilities such as embezzlement by the previous management, making competitive bidding difficult. Therefore, the shares were transferred to N&PI. If there is an issue with the valuation, we have completed legal review that the settlement amount can be returned to Springhill Green through civil proceedings.”

This content was produced with the assistance of AI translation services.