Kyobo embarrassed over 'questionable' plot by Affinity

Kyobo Life Insurance headquarters in Seoul / Courtesy of Kyobo Life Insurance

By Lee Min-hyung

Kyobo Life Chairman Shin Chang-jae

Kyobo Life Insurance remains embarrassed over what is widely considered to be a “questionable attempt” by Affinity Equity Partners, after legal representatives of the Hong Kong-based private equity firm sought a provisional attachment of the insurer's assets by forcing entry into the residence of a chief of the Korean company and its headquarters.

In mid-February, a Seoul court granted permission for the Affinity consortium ― which is a financial investor of Kyobo ― to carry out the provisional seizure of Kyobo Life Chairman Shin Chang-jae's securities certificate of the company.

Affinity officials are known to have destroyed the front gate of Shin's home in Seoul and injured a guard there while attempting the forceful entry late last month.

Industry officials argue the move was aimed at defaming Shin and Kyobo ahead of a planned arbitration session led by the International Chamber of Commerce (ICC) amid their escalating legal dispute. The second hearing from the ICC will take place for five days from March 15.

“Few people keep such a paper-version securities certificate at home or offices, after the nation adopted the electronic securities system back in early 2010,” an industry official said. “Affinity must have been aware of the fact that it cannot take anything from the provisional attachment. Chances are the consortium actioned the questionable behavior simply to gain an upper hand in the upcoming settlement.”

Affinity's move to seek the provisional seizure, in itself, appears to be nothing more than a show at a time when the company has draw questions on Kyobo and appeal more to the ICC, according to the official.

Affinity is known to have applied for the seizure of Kyobo's securities worth less than 200 billion won ($175.5 million), but this is far below its earlier demand for Shin to pay back around 2 trillion won for their invested capital.

“It still remains to be seen why the legal representatives from Affinity took the questionable action, even if they are aware that nothing can be achieved simply by attempting to force entry into Shin's home,” the official said. But the move may have been taken to secure evidence to back up the firm's arguments during the upcoming settlement session, according to the official.

Kyobo and Affinity took part in the first round of the pre-arbitration hearing at the ICC International Court of Arbitration last October. The upcoming second session will be the final chance for both sides to be heard before the ICC confirms its final arbitration sometime as early as September this year.

The latest move by Affinity came about a month after the investor consortium dropped a lawsuit against Shin. Earlier, the Affinity consortium sued Shin for fraud amid their stark difference in the proper valuation of Kyobo's pre-initial public offering (IPO) stock price. The purpose of Affinity's abrupt decision remains unclear, but market watchers consider it a strategic decision for the consortium to focus on the international arbitration, rather than continuing to intensify legal disputes in the Korean market.

Kyobo insists that Affinity is seeking to overvalue the price by joining hands with its accounting partner, Deloitte Anjin. Officials from the consortium and the accounting firm are under investigation by the prosecution for what Kyobo considers “suspicious internal trading.” The prosecution is looking into whether Affinity and Anjin colluded to engage in the alleged accounting fraud by manipulating Kyobo's corporate value.

The insurer presented a petition recently to the nation's two financial watchdogs, the Financial Supervisory Service and the Financial Services Commission, requesting them to carry out a thorough investigation into Anjin's accountants over their suspicious business ties with Affinity.

The Affinity consortium is Kyobo's second-largest shareholder after acquiring a 24 percent stake in 2012 for 1.2 trillion won. The consortium demands Shin buy back its shares at 409,000 won by exercising their put option, which the Kyobo leader considers too excessive.

The put option agreement allowed the investor to withdraw its investment from the Korean insurer unless the latter went public by the end of 2015. But with Kyobo delaying the timeline, Affinity exercised the right, and the two sides failed to reach a consensus in the proper valuation of Kyobo's pre-IPO stock price.

The years-long dispute between the two sides is centered on their differing views on the stock valuation. With both sides showing no signs of making concessions to each other, all eyes are on the arbitration results from the ICC.

“For now, it is hard to predict what kind of arbitration decision will be made, as this is a dispute between a Korean company and an overseas consortium,” another industry source said.

A spokesperson from Kyobo remained careful over making official comments on Affinity's recent attempt for the provisional attachment, citing sensitivity of the upcoming arbitration.