Kyobo faces dilemma over IPO
By Nam Hyun-woo
Kyobo Life Insurance seems to be trapped in a dilemma due to growing pressure to go public. The Seoul-based insurer said it will launch an initial public offering (IPO) for a capital increase, but there are questions as to whether the move will weaken Chairman Shin Chang-jae’s grip on the firm.
Shin’s control over the company had already faced a crisis amid the financial regulator’s punishment over unpaid benefits for suicide claims. Kyobo said its IPO will not affect Shin’s power, but observers say Kyobo may not want the IPO soon.
According to Kyobo, Thursday, the insurer will launch an IPO to increase its capital to deal with new financial reporting rule IFRS 17, which would inflate liabilities in its balance sheets.
In order to prepare for the change, Kyobo carried out a study on ways of jacking up capital, such as issuing hybrid bonds and an IPO. It opted for the latter and now is considering the timeline and volume of the IPO. Plus, its investors hope to exit through it.
In 2012, a consortium of financial investors -- Affinity, IMM Private Equity, Baring Private Equity and the Government of Singapore Investment Corporation -- purchased a 24 percent stake in Kyobo at 1.2 trillion won ($1.05 billion) from Daewoo International (now POSCO Daewoo).
Back then, the consortium placed a put option clause under which Shin has to buy back the stakes unless the insurer goes public by the end of 2015. Although the insurer did not go public by the due date, the consortium did not exercise the option, buying Kyobo’s explanation that “Now is inappropriate for the IPO given the sluggish life insurance industry here.”
According to industry sources, however, Kyobo Life is facing “growing pressure to go public in the near future” after its peer ING Life recently passed the bourse operator’s preliminary review for listing. This sparked anticipation that Kyobo may be listed by the end of this year.
Some market watchers say the IPO may do more harm than good for the company. Generally an IPO helps a company to draw capital, but dilutes the largest stakeholder’s management control over the firm.
Shin has a 33.78 percent stake in Kyobo. Adding stakes owned by his family, shares under Shin’s control stand at 39.45 percent. The consortium’s exit -- whether after the IPO or through other types of sales -- is feared to decrease the volume of stakes friendly to Shin and his grip on the firm’s management could be swayed depending on the destination of the stake.
“Kyobo seems to be in a dilemma,” an industry official said asking not to be named. “The company will not likely buy back the stake because it will damage the company’s risk-based capital ratio. Then the question is how the consortium will act. Should it put the 24 percent stake up for block sale or pursue another type of sales method, Shin’s management control can be affected.”
A Kyobo official said the company does not “expect the IPO to affect” Shin’s control over the company.
His rationale: the company regards around 50 percent of its stake, including that of Shin and his family members, is friendly to Shin. Hence, even if the remaining 50 percent, including the consortium’s 24 percent and the remainders owned by a consortium led by Corsair Capital, turns against Shin, his control over the company’s management would not be undermined.
“No large stakeholders of listed life insurers here have stakes larger than 50 percent,” said a Seoul-based analyst asking not to be named.
Another factor hampering Kyobo’s IPO bid is previous cases of other life insurers which went public. Shares of Mirae Asset Life, which went public July 2015, are hovering around 6,300 won, lower than its offering price of 7,500 won. Hanwha Life also ended at 6,430 won, Wednesday, lower than its offering price of 8,200 won. Other life insurers whose shares are on the bourse are traded at prices lower than their offering prices.