Kyobo, Affinity set to escalate lawsuit despite ICC arbitration

Kyobo Life Insurance Chairman Shin Chang-jae delivers a speech to the company's employees at its headquarters in Seoul, on April 28. Courtesy of Kyobo Life Insurance

Kyobo may seek breakthrough via IPO

By Lee Min-hyung

With the high-profile lawsuit between Kyobo Life Insurance and Affinity Equity Partners going back to square one, both sides are expected to reignite legal proceedings against each other, amid their stark disagreement regarding the Korean insurer's pre-initial public offering (IPO) valuation.

Affinity, a Hong Kong-based private equity firm, is a major financial investor in Kyobo. Earlier, both parties had signed a put option agreement, through which the Affinity-led consortium could withdraw its invested capital from the insurer if Kyobo went public by 2015.

But after the insurer delayed the plan, the investors demanded that Kyobo Life Insurance Chairman Shin Chang-jae buy back their shares for 409,000 won ($351) per share. Kyobo, however, argued that this amount was overpriced, and declined to do so.

Both sides sought arbitration from the International Chamber of Commerce (ICC), but its latest ruling failed to mediate their differences regarding the valuation. The arbitrator has said that the put option agreement remains valid, but it dismissed Affinity's claim on the pricing of the Kyobo shares.

Kyobo has gained some time following the ruling, as Shin would have been exposed to a possible management risk if the ICC had ruled in favor of the consortium, and Shin was ordered to accept the Affinity demand on Kyobo's pre-IPO pricing.

A spokesperson at the Korean firm said that it would wait and see which actions Affinity takes after the ICC ruling.

“After reviewing the ruling, we are going to take appropriate measures in response to upcoming actions from the Affinity consortium,” the official from the company said.

The key issue is how Affinity recalculates the pricing. With Kyobo and Affinity showing little signs of making any concession to each other, there stands an ample chance that they will face additional lawsuits.

An official from Affinity said that the financial investors plan to close the put option deal “by taking relevant actions.” But it appears unlikely that both sides will be able to come to terms with each other in a short period of time, and they will likely exchange additional lawsuits until they find a middle ground, according to industry watchers.

Given that the put option agreement is still in effect, the industry raises the possibility that the insurer may push for the IPO once again, in order to seek a breakthrough to settle the dispute.

“If Kyobo is listed on the stock market, the company can avoid any unnecessary disputes over its proper valuation,” an industry source said. “But this is not a simple matter, and the company has to take into account various factors ― such as its post-IPO performance ― before going public.”

Meanwhile, the prosecution is scheduled to hold a second trial Friday on allegations that some Deloitte Anjin accountants engaged in accounting fraud by manipulating Kyobo's corporate value upon the request of their client, Affinity.

In January, the prosecution indicted three Deloitte Anjin accountants for allegedly breaching the certified accountant act, by colluding with its client on the pricing of Kyobo's pre-IPO valuation.