Affinity Equity-led group to exercise put option on $1.8 bn Kyobo Life shares

  • 2018-12-04

A consortium led by Affinity Equity Partners will push ahead with exercising their right to sell shares in South Korea’s Kyobo Life Insurance Co. Ltd. by the end of this month, which they estimate at 2 trillion won ($1.8 billion), frustrated by long delays in the insurer’s initial public offering, according to sources with direct knowledge of the matter.

The group of four financial investors, including Baring Private Equity Asia (Baring PEA), Singapore’s GIC and IMM Private Equity (IMM PE), had acquired a combined 24% stake in Kyobo, South Korea’s No.3 life insurer by assets, for 1.2 trillion won from a South Korean company in 2012.

The share purchase included a put option which they can exercise to Kyobo chairman and chief executive officer Chang-jae Shin, if Kyobo fail to go public by September 2015.

Kyobo Life Insurance's chairman and chief executive Chang-jae Shin

Kyobo Life Insurance’s chairman and chief executive Chang-jae Shin

After several delays, Kyobo postponed an IPO again in September, citing poor stock market conditions and uncertainties related to the international financial reporting standards, IFRS17, due in early 2021.

The decision prompted the Affinity Equity-led consortium to exercise their put option, under pressure to return investments to their limited partners. It was followed by Kyobo’s abrupt call for a board meeting next week to proceed with an IPO.

Their move also came after South Korea’s private equity firm MBK Partners exited Seoul-based Orange Life, formerly ING Life Insurance Korea, in five years by selling a 59% stake to South Korean banking group Shinhan Financial Group for 2.3 trillion won this year. It listed the insurer in 2017. The annualized IRR of Orange Life investment was between 25% and 30%, the Seoul Economic Daily quoted Michael Byung-ju Kim as saying in a conference last month.

“Kyobo has been wasting time since 2015. So we won’t retract our decision on the put option, even if they proceed with an IPO,” said one of the sources.

“Should they go ahead with an IPO by the first half of next year, they already should have appointed an IPO auditor last month, but Kyobo refused it,” he added.

Based on the consortium’s financial assessment, the exercise price for Kyobo shares was set at 2 trillion won in total.

Unless Shin buy back the shares by the deadline of end-December or come up with a suggestion to return the investments of the financial investors, both sides will go to arbitration.

Depending on the arbitration decision, Shin may have his private assets seized, or need to find a third-party buyer for Kyobo’s management rights because a loan against his Kyobo shares would fall short of covering the cost, according to other sources.

Shin has a 33.78% stake in Kyobo Life. The 65-year-old former obstetrician and his family members control 36.91% of Kyobo Life.

Affinity Equity owns 9.05% of Kyobo Life, and Baring PEA and IMM PE holds 5.23% respectively. GIC has a 4.5% stake.

Separately, Ontario Teachers’ Pension Plan of Canada holds a 7.62% stake in Kyobo Life, but it did not participate in the Affinity Equity-led group.

Kyobo Life posted a net profit of 571 billion won between January and September of 2018, against 108 trillion won in assets.

By Hugh YH Jeong and Chang Jae Yoo

hugh@hankyung.com

<Edited by Yeonhee Kim>

Photo: Getty Images Bank