Kyobo, Affinity consortium lock horns at ICC arbitration over put option

Kyobo Life Insurance Chairman Shin Chang-jae / Korea Times file

By Lee Kyung-min

A five-day hearing in the International Chamber of Commerce (ICC) arbitration between Kyobo Life Insurance Chairman Shin Chang-jae and the company's financial investors ― represented by a consortium led by Affinity Equity Partners, a Hong Kong-based private equity firm ― was concluded, but it will still be at least six months before a decision is made, according to market sources, Sunday.

The five-day hearing from March 15 through 19 ― the second since the first one held last October ― was part of the arbitration process to determine whether the consortium can exercise a put option at nearly double the price Shin is willing to pay, concluding the outcome of a years-long dispute that dates back to 2012. A put option is a contract giving the owner the right to sell ― or sell short ― a specified amount of an underlying security at a pre-determined price within a specified time frame.

In 2012, the consortium bought 24 percent of Kyobo's shares from Daewoo International, on condition that it could exercise a put option whereby the consortium must sell the bought shares to Shin if the life insurer failed to carry out an initial public offering (IPO) by September 2015, which is exactly what happened.

Shin said the delay in IPO was inevitable because the firm had to put aside a greater amount of capital to comply with International Financial Reporting Standard (IFRS) 17 issued by the International Accounting Standards Board in May 2017, a tighter rule for insurers to increase their financial soundness.

The continued delay led the consortium to give notice that it was exercising the put option at an amount of over 2.1 trillion won ($1.8 billion) in October 2018, an understandable decision according to market watchers since the hefty investment had not been going anywhere for years.

The dispute then turned to how much the put option should be valued at with the consortium arguing 409,000 won per share, which was rejected by Shin who views the mid-200,000 won range to be more than enough.

Complicating the matter is whether the ICC will factor in the prosecution's investigation into Deloitte Anjin, which investors believe overpriced the insurer's shares at the request of the consortium that is suspected of having micromanaged evaluation methods, such as industry competitors to be compared with, among other key criteria.

If Shin finally wins, he will be able to continue managing the firm backed by new prospective investors. But if he loses, he must come up with about 2 trillion won to pay the consortium not to mention interest incurred over the past few years. This could reorganize the firm's shareholder structure with Shin's control of the firm hanging in the balance.

The ICC arbitration decision will be made as early as September, given that it takes between six months and a year from the time a hearing ends.