900 Billion Invested, Yet Called Capital-Free?... Keystone PE: "A Capital Acquisition Was Legitimate"

75% of Acquisition Funded with Own Capital... Additional 30 Billion Won Injected
"Credit Lending Was Unavoidable Due to the Legoland Crisis"
Company Performance Narrowly Recovered... Refuting Criticism

Keystone Private Equity has firmly refuted recent allegations that it acquired A Capital through a no-capital merger and acquisition (M&A). The firm stated that 75% of the acquisition price was funded with its own capital, followed by an additional capital increase, making it a normal transaction. The acquisition financing involved was also at a standard level, according to Keystone PE.

On March 24, Keystone PE issued this statement regarding the recent controversy surrounding A Capital. The company first rejected the claim that this was a "no-capital M&A." Keystone PE explained, "When we acquired A Capital jointly with another management company in August 2021, we provided 90 billion won out of the total acquisition price of 120 billion won with our own capital, while only 30 billion won was raised through external acquisition financing." The company emphasized, "This is a typical structure in the M&A market and, in fact, the leverage ratio was unusually low and thus very stable."

Furthermore, the firm highlighted that it had completed an additional capital increase of 30 billion won in March 2022, immediately after the acquisition, to strengthen A Capital’s capital base. "Through the 30 billion won paid-in capital increase and asset acquisitions, we supplied more than 75 billion won in liquidity," said Keystone PE. "All of these facts were disclosed and reported to the regulatory authorities, yet The Korea Economic Daily article nevertheless characterized this normal transaction as a 'no-capital M&A,'" the company pointed out.

Keystone PE also rebutted allegations of "credit extension round-tripping," which claimed that A Capital’s funds were used to cover the acquisition financing. The company clarified that the first credit extension occurred only in August 2023, two years after the acquisition, and that this was an unavoidable decision due to the liquidity crunch in the finance leasing industry following the Legoland crisis. "At that point, A Capital was clearly in a position to pay dividends, but we strategically opted for shareholder loans to preserve cash liquidity without undermining the company’s financial foundation," a Keystone PE representative explained. "If the principal and interest on the acquisition financing had been paid through dividends, A Capital would have been required to pay dividends even on newly issued shares from the paid-in capital increase, leading to a greater cash outflow burden," the company stressed.

Keystone PE also addressed concerns about A Capital’s poor performance after the acquisition. The company explained that, on the contrary, A Capital’s business performance improved following the acquisition, until it was hit by the external shock of the Legoland crisis.

"A Capital was already operating at a loss before our acquisition, but turned a profit in 2022, immediately after the acquisition, thanks to the additional capital increase and business restructuring," Keystone PE explained. "However, when the Legoland crisis erupted, which led to increased provisioning burdens and a liquidity crunch across the finance leasing industry, A Capital also fell into the red the following year. Nevertheless, with ongoing liquidity support and restructuring, the company recorded a net profit of 5.2 billion won last year, returning to profitability," the firm countered.

Previously, A Capital had recorded a net loss of 500 million won in 2020, before the Keystone PE acquisition, and a net loss of 800 million won in 2021. After the acquisition by Keystone PE, the company posted a net profit of 2 billion won in 2022. However, at the end of 2022, when Kangwondo Governor Kim Jin-tae filed for corporate rehabilitation for Kangwon Jungdo Development Corporation, which was responsible for developing Legoland in Kangwondo, the so-called "Legoland crisis" occurred. This led to a sharp drop in credit ratings for Korean bonds and a severe capital crunch in the bond market. As a non-deposit-taking finance company, A Capital’s funding costs soared, severely undermining its business viability. Consequently, A Capital posted net losses of 23 billion won in 2023 and 39.4 billion won in 2024, but returned to profitability with a net profit of 5.2 billion won last year.

Based on these facts, Keystone PE plans to actively respond to The Korea Economic Daily’s report titled "Keystone PE Used A Capital Funds to Repay Acquisition Loan." A Keystone PE official stated, "We have sent a formal notice to The Korea Economic Daily and the reporter who wrote the article, immediately demanding its deletion and an explanation. If our demands are not met, we will not only request a correction and a counter-statement but will also review and proceed with all possible civil and criminal legal actions under the relevant laws."

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