Put Option Dispute Continues... IMM PE Shows No Retreat

Appeal Filed Against Ruling of "No Indirect Enforcement Fine for Chairman Shin"
No Compromise on Put Option Price Below Principal
Concerns Over Breach of Fiduciary Duty if Compromised

The Kyobo Life put option dispute, which was entering its final stages, shows signs of becoming prolonged again. Other investors such as Apalma Capital, Affinity Equity Partners, and the Government of Singapore Investment Corporation (GIC) agreed with Kyobo Life Chairman Shin Chang-jae on a put option exercise price below the principal after seven years, but IMM Private Equity insists on receiving the full price. Moreover, as Chairman Shin failed to submit the put option price calculation report by the deadline despite the International Chamber of Commerce (ICC) order, legal battles are expected to ensue.

According to the investment banking (IB) industry on the 11th, IMM PE recently appealed a domestic court ruling that stated the ICC’s imposition of a daily indirect enforcement fine of $200,000 exceeded the ICC’s authority. Chairman Shin’s side intends to wait without compromise until an appraisal institution is selected and the put option price is determined.

Earlier, on the 21st of last month, the Seoul Central District Court ruled in favor of the plaintiff in the 'Request for Review of ICC Enforcement Fine Imposition Authority' lawsuit filed by Chairman Shin. The court held that the ICC’s enforcement fine has no effect domestically. However, it clearly acknowledged that Chairman Shin must select an appraisal institution and submit a valuation report. Accordingly, Chairman Shin’s side must select a third-party appraisal institution to submit the put option price report, and if the price differs by more than 10% from the price proposed by financial investors (FIs) such as IMM PE, another appraisal institution must be appointed. In this case, if the FIs propose three candidates, Chairman Shin will choose one to finalize the price.

However, it is reported that Chairman Shin’s side has not submitted the price report based on the Seoul Central District Court’s judgment. In response, investors such as IMM PE and EQT have criticized Chairman Shin’s side for deliberately stalling and waiting for a compromise, exploiting the fact that enforcement fines are not imposed. Chairman Shin’s side stated, "The ICC arbitration panel only ordered that necessary measures be taken so that an external appraisal institution is selected and the report submitted within 30 days, but did not order Chairman Shin to directly submit the price calculation report."

IMM PE has stated that it will not back down as it has appealed the court’s ruling. It also judged that the atmosphere where limited partners (LPs) with public funds such as the National Pension Service (NPS) dislike noise in investments is not a burden. Previously, the NPS revealed that it is considering measures to avoid participating in hostile takeovers when signing private equity fund (PEF) management contracts, following noise caused by incidents such as MBK Partners’ Homeplus case and the Korea Zinc management dispute.

An IMM PE official explained, "The dispute with Kyobo Life is simply a process of recovering investment and is different from a management rights dispute or reckless corporate rehabilitation," adding, "The fund invested in the Kyobo Life put option has already matured and generated considerable profits, so there is no pressure to liquidate."

There is also a reason IMM PE cannot easily back down. The price agreed upon by Chairman Shin with Affinity and Apalma (KRW 190,000 per share) is far below IMM PE’s investment cost of KRW 310,000 per share. Agreeing on a similar level could lead to criticism that it violates the fiduciary duty of care as a general partner (GP). This means that the NPS could be questioned during future audits about whether it did its best to recover the investment.

An IB industry insider explained, "Affinity and Apalma likely made decisions to endure losses because they have a lot of foreign capital," adding, "IMM PE, centered on domestic institutional investors such as the NPS, will not easily back down."