Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Kyobo gains edge in battle with Deloitte
Kyobo Life Insurance Chairman Shin Chang-jae, left, and Deloitte Anjin CEO Hong Jong-sung / Courtesy of each firm
By Lee Min-hyung
By Lee Min-hyung
Kyobo Life Insurance has gained an edge in a months-long legal dispute with Deloitte Anjin, after prosecutors indicted three Deloitte accountants for allegedly colluding with the insurer's financial investors to distort Kyobo's estimated stock price before its initial public offering (IPO).
Kyobo expected prosecutors to have discovered evidence of the alleged collusion between the accountants and executives of the consortium.
The legal battle started in April 2020 when Kyobo accused the accounting firm of “unfairly and insincerely” valuating the insurer at the request of a consortium led by Affinity Equity Partners. The consortium is Kyobo's second-largest shareholder, which acquired a 24.01 percent stake in the insurer in 2012 for 1.2 trillion won ($970 million).
At that time, both sides signed a put option agreement under which the consortium would be allowed to exercise its right to withdraw the invested capital from the insurer if Kyobo failed to go public by the end of 2015.
But after Kyobo delayed the IPO, the investors urged Kyobo Life Insurance Chairman Shin Chang-jae to buy back their shares for 409,000 won per share, while Shin argued that the price should be set between 200,000 and 300,000 won.
Kyobo Life Insurance headquarters in Seoul / Courtesy of Kyobo Life Insurance
The consortium teamed up with Deloitte Anjin to back up its demand for the price, which Kyobo and its leader have considered to be excessive.
After a nine-month investigation, the Seoul Central District Prosecutor's Office indicted three Deloitte Anjin accountants and two financial investors on charges of breaching Korea's accounting laws.
A spokesperson at Kyobo said a “new milestone” will be set regarding the unfair practices of some accounting firms.
“Our position remains unwavering that the financial investors overvalued the estimated stock price after we decided not to pursue the IPO by the previously-agreed-upon timeline,” a Kyobo official said.
“The decision not to go public came in reflection of unfavorable market circumstances represented by a super-low interest rate and a series of other pending issues and regulations related to the insurance industry,” the official said.
Kyobo considered the initial IPO plan to be ill-timed due to the external uncertainties and said there are no other reasons for the decision. But the investors insisted that Kyobo did not push for the IPO in order to tighten Shin's management control.
“Kyobo did not push ahead with the plan amid concerns that Shin may have a tough time maintaining his leadership, as his share ratio would fall when the firm issued new shares during the IPO process,” an official from Affinity Equity Partners said.
The insurer, however, disputed the claim, reiterating its position that the low interest rate and toughening insurance regulations put the brakes on the plan.
“The financial investors have argued that Kyobo fulfilled its legal requirement for the IPO, such as the minimum capital and return on investment, but it is not that hard for big firms to meet such quantitative conditions,” the Kyobo spokesperson said.
“The point lies in the qualitative requirement, such as the external market circumstance, and we did not go public due to worsening market conditions.”
Given the stark difference between the two sides, it appears unlikely the dispute will come to an end in the near future.
The investors stepped up their criticism of Kyobo, and expressed deep regret and anger against the insurer.
“Investors have been regarded as criminals after Shin reported the issue to prosecutors,” the official from the consortium said. “We are confident that our employees did not break any laws and will spare no efforts to prepare for upcoming trials.”
The consortium went on to say that it would continue to protest its innocence in the courts and take issue with what it called Shin's “breach of contract.”
Last week, the consortium accused Shin of violating the contract with shareholders by failing to go public.
The latest dispute erupted after Shin failed to keep his previous promise to go public, according to the investors. The controversy over the estimated pricing of the shares will be brought to the international arbitration court, according to the consortium.
The arbitration process is expected to take years. For now, neither side is willing to reach a compromise over the pricing of the shares.