Difficulties in Recovering Investments in Fresh Easy, Kurly, Etoos, and Others
Anchor PE, the Second-Largest Shareholder of Kakao Entertainment
Invested in 2016... Time for Investment Recovery Has Arrived
Red flags have been raised over the recovery of investment funds by Anchor Equity Partners (hereinafter Anchor PE), a Hong Kong-based private equity firm managing a portfolio of several domestic companies. This is due to the deterioration of the performance of most of its invested companies. As a result, there is analysis suggesting that Anchor PE, as the second-largest shareholder, is pressuring Kakao Entertainment to sell in order to recover its investment.
According to the investment banking (IB) industry on the 14th, Anchor PE is facing difficulties in recovering its investments as the corporate value of most of its invested companies has declined. Anchor PE's major domestic investment portfolio includes ▲SK Elexlink ▲Fresh Easy (Fresh Easy) ▲Kurly ▲Kakao Piccoma ▲Kakao Entertainment ▲Line Games ▲Etoos, among others.
In 2021, Anchor PE invested about 300 billion KRW to secure management rights and approximately 67% of shares in Fresh Easy. According to GS Retail's business report last year, which holds 2.2% of Fresh Easy's shares, the book value of the 2.2% stake was evaluated at 950 million KRW. Based on this, Anchor PE's share value appears to have declined by more than one-tenth over four years.
Kurly, which has been continuously posting losses, is also in a difficult situation. Anchor PE valued Kurly at 4 trillion KRW in 2021 and invested 250 billion KRW to acquire a 7.56% stake. It also participated in a third-party allotment capital increase conducted by Kurly in 2023, investing an additional 100 billion KRW and increasing its stake to 10.88%. However, the estimated market capitalization of Kurly in the recent over-the-counter market is around 500 billion KRW.
Offline and online entrance exam education company Etoos Education is also experiencing poor performance. Anchor PE initially invested a minority stake in Etoos Education in 2015 and secured management rights in 2019 by acquiring additional shares from the existing major shareholder. Anchor PE procured acquisition financing worth over 100 billion KRW from Korea Investment & Securities when acquiring Etoos Education. The remaining repayment amount is known to be in the 90 billion KRW range. However, due to several years of declining performance and worsening cash flow, refinancing the acquisition loan has become difficult.
Accordingly, the industry suggests that Anchor PE, facing difficulties in recovering its investments, may be pressuring Kakao, leading to rumors of the sale of its subsidiary Kakao Entertainment. Anchor PE is the second-largest shareholder of Kakao Entertainment.
Recently, Kakao reportedly sent letters to major shareholders of Kakao Entertainment expressing its intention to sell. Kakao is the largest shareholder of Kakao Entertainment with 66.03%. The next largest shareholder is Anchor PE with approximately 12.42%. In addition, the Singapore Investment Corporation (GIC) and the Saudi Arabian Public Investment Fund (PIF) each hold 5.1%. China’s Tencent also holds about 4.6%.
Kakao had been pursuing an initial public offering (IPO) for Kakao Entertainment. However, controversies such as split listings arose, and with the recent stock market downturn and slowing growth in the content industry, the IPO process was halted. Ultimately, the sale was proposed as a method to recover investment funds, and the industry believes Anchor PE’s influence played a significant role in this decision.
Anchor PE invested in Kakao Entertainment in 2016. Typically, private equity funds aim to recover investments within 5 to 10 years, so the timing for investment recovery has arrived. GIC and PIF invested in Kakao Entertainment relatively later, in 2023. The corporate value of Kakao Entertainment recently discussed in the market is around 11 trillion KRW.
An IB industry insider said, "There seems to be a 'shareholders' agreement' behind the rumors of Kakao Entertainment’s sale, and Anchor PE, which has been invested for nine years, likely had a significant influence. If investment recovery is not made on time, there is great pressure from investors, and since Anchor PE is facing difficulties recovering funds from other investments, it is possible they pressured Kakao," he explained.
Meanwhile, Kwon Ki-soo and Jang Yoon-jung, co-CEOs of Kakao Entertainment, recently explained through the company bulletin board that "Kakao was discussing the replacement of financial investors and changes in shareholding, and the rumors of Kakao Entertainment’s sale were a misunderstanding during this process." They added, "Our unwavering goal is to continuously achieve global success, so we ask everyone to remain steady and continue working without distraction."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
