KCGI Optimistic About Acquiring Hanyang Securities: "Can Be Completed by End of This Month"

Concerns Persist in the Industry Over Ongoing Tax Audit Risks

Activist private equity fund KCGI has expressed confidence in acquiring Hanyang Securities, even as it is undergoing a special tax audit by the National Tax Service. The company maintains that it can complete the acquisition by the end of this month, which is the deadline for the stock purchase agreement (SPA). However, industry insiders are concerned that the outcome could change depending on the National Tax Service's response, given the recent change in government.

According to the investment banking (IB) industry on June 5, KCGI maintains its position that it can finalize the acquisition of Hanyang Securities by the end of this month. A senior KCGI official stated, "Although we are currently under a tax audit by the National Tax Service, our company is not large, and the scope of the investigation is not extensive, so we do not expect it to take long," adding, "We anticipate that the audit will conclude soon, allowing us to complete the transaction with Hanyang Academy within the SPA deadline."

Previously, the National Tax Service launched a special tax audit into KCGI's alleged tax evasion starting in March. The audit was conducted by the Seoul Regional Tax Office's Investigation Bureau 4, known as the "grim reaper of corporations," and reportedly included reference interviews with KCGI CEO Kang Seongbu as well as former KCGI employees.

News of the tax audit at the time also led to the suspension of the Financial Services Commission's review of KCGI's eligibility as a major shareholder. KCGI had applied for approval of the change in major shareholder of Hanyang Securities to the Financial Services Commission in January this year. Since the SPA deadline with Hanyang Academy is the end of this month, the contract could become void depending on the outcome of the tax audit. Previously, in August last year, KCGI was selected as the preferred bidder for the 29.6% stake in Hanyang Securities held by Hanyang Academy and others. The initial acquisition price was in the 250 billion won range, but after signing the SPA, the price was lowered to approximately 220 billion won.

Both KCGI and Hanyang Academy are firmly committed to the negotiations. KCGI, after acquiring Meritz Asset Management (now KCGI Asset Management) in 2023, is eager to expand its financial group portfolio. Hanyang Academy, on the other hand, needs to sell the securities firm to provide financial support to its affiliated construction company, Hanyang Industrial Development, and Hanyang University Hospital. Hanyang Industrial Development has been impacted by the fallout from real estate project financing (PF) failures, while Hanyang University Hospital has suffered due to the resident doctors' strike.

While KCGI remains optimistic about the acquisition of Hanyang Securities, the industry believes it is too early to be certain. The recent change in government means that the National Tax Service may report various transactions and investigation details to the new administration, creating potential variables. In particular, given the current negative public sentiment toward private equity funds, there could be obstacles. An official from a private equity firm (PE) commented, "The National Tax Service has historically wielded significant power and influence during government transitions," adding, "Since the new administration may scrutinize matters related to special tax audits more closely, it is premature for KCGI to be overly confident."