"2 Trillion Won Conflict Threatens Management Rights"... Kyobo Life-Affinity's Longstanding Feud

[Asia Economy Reporter Changhwan Lee] Kyobo Life Insurance officially announced on the 8th that it will make a fourth attempt in the second half of this year after the failure of its third initial public offering (IPO), drawing attention to the persistent conflict between Chairman Shin Chang-jae of Kyobo Life Insurance and the financial investor (FI), the private equity fund Affinity.

On the 15th, Kyobo Life Insurance stated in a press release, "The IPO was disrupted due to Affinity's 'stubbornness,' and we demand that Affinity stop activities that hinder the listing and actively cooperate." In response, Affinity asserted that according to the shareholders' agreement, Chairman Shin has a legal obligation to purchase the FI's shares, and if he complies with the contract, the shareholder dispute will be resolved.

The legal obligation refers to Chairman Shin having to accept Affinity's exercise of the put option (the right to sell certain assets at a specific price), but since the put option exercise price was not set, the conflict between the two sides shows no sign of resolution. How did Chairman Shin and Affinity end up in this situation?

Listing Failure Due to Dispute with Affinity Consortium

On the 8th, the Korea Exchange held a listing disclosure committee meeting and did not approve Kyobo Life Insurance's listing on the KOSPI market. Chairman Shin personally attended the committee meeting that day, explaining the company's status and vision to persuade the members, but ultimately, it was assessed that listing within the year would be difficult.

The reason for the disapproval of Kyobo Life Insurance's listing was the dispute with the financial investors, the Affinity consortium. The exchange concluded that the dispute between the two parties could threaten management rights, deeming the listing inappropriate. An official from the exchange said, "Management disputes are one of the major obstacles to listing." It was explained that listing would be difficult unless the management dispute is resolved.

Severe Conflict Due to Put Option Clause Signed in 2012

Kyobo Life Insurance and the Affinity consortium have been embroiled in severe conflict over the put option clause for several years. In 2012, the Affinity consortium acquired a 24% stake in Kyobo Life Insurance from Daewoo International at 245,000 KRW per share (totaling 1.2054 trillion KRW). The consortium consisted of Affinity Equity Partners, IMM PE (private equity fund), Baring PE, and the Singapore Investment Corporation.

At that time, Chairman Shin provided a put option clause allowing Affinity to sell shares back to him if the company did not go public by September 2015, aiming to make Affinity a friendly shareholder. However, Kyobo Life Insurance's listing did not occur by 2015 due to changes in accounting standards, low interest rates, and deteriorating performance, which negatively affected life insurers' stock prices. Listing in an unfavorable market environment could threaten management rights.

Affinity reportedly accepted this at the time. However, as the listing still did not happen, Affinity exercised the put option in October 2018 at 409,912 KRW per share (totaling 2.0122 trillion KRW) and filed for arbitration with the International Chamber of Commerce (ICC) in February 2019, marking the start of the formal dispute.

The core of the dispute is the put option exercise price. Chairman Shin's side argues that the 409,912 KRW price, calculated by Deloitte Anjin Accounting Firm, is unreasonably high. Comparing the stock prices of major listed life insurers between September 2012, when Affinity purchased the shares, and October 2018, when the put option was exercised, all had declined. They claim Kyobo Life Insurance's stock price was overvalued by 67%.

Since Chairman Shin would have to pay nearly 2 trillion KRW personally, he might have to sell his holdings and lose management control, making it practically impossible for him to accept the put option price. Ultimately, Chairman Shin hopes to receive a fair market valuation through listing, while Affinity also wants to recover funds through the stock market.

Kyobo Life Wants to List, but Affinity Continues Opposition

However, Affinity prefers to recover funds through the put option rather than listing. Affinity maintains that regardless of the listing, Chairman Shin has a legal obligation under the shareholders' agreement to purchase the FI's shares, and if he complies, the shareholder dispute will soon end. They want to conclude the matter by having Chairman Shin buy the shares as originally agreed under the put option.

Affinity believes that recovering funds through exercising the put option is more profitable than listing. If Kyobo Life Insurance's listing valuation is 5 trillion KRW, Affinity's 24% stake would be worth approximately 1.2 trillion KRW by simple calculation, whereas the current put option value demanded from Chairman Shin is 2 trillion KRW, showing a large difference.

Hanwha Life Insurance, considered the second-largest company in the life insurance industry alongside Kyobo Life Insurance, has a market capitalization of about 1.85 trillion KRW (as of July 18), and some evaluations suggest Kyobo Life Insurance's listing value may be less than 5 trillion KRW. In that case, Affinity's stake value could fall further.

Affinity bought Kyobo Life Insurance shares from Daewoo International in September 2012 for 1.2054 trillion KRW, and it is analyzed that they are pushing for the put option exercise to avoid ending the deal at a loss. Ultimately, both sides are engaged in a hard-to-compromise battle, and it is expected that the conflict will not be resolved soon.

An industry insider said, "Affinity seems to believe that they cannot properly exit (recover funds) through listing," adding, "They will likely demand the put option price, which values Kyobo Life Insurance as high as possible, from Chairman Shin and try to generate investment returns through this."

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