Activist fund KCGI to buy Hanyang Securities for $180 mn

South Korean private equity firm KCGI Co. is expected to acquire local brokerage house Hanyang Securities Co. for 244.9 billion won ($179.8 million), but financial regulators may block the takeover over a potentially illegal practice in the deal.

The securities firm said on Friday in a regulatory filing that its top shareholders — Hanyang University Foundation, Paik Nam Tourist Co. and The Christian Newspaper — selected the activist fund KCGI as a preferred bidder to sell their combined stake of 29.6% at 65,000 won per share, more than quadruple its closing price on that day.

The foundation is set to sell 11.3% of its 16.29% stake, while its affiliated Paik Nam and the newspaper are prepared to unload their entire stakes of 10.85% and 7.45%, respectively. After the deal, the foundation and its Chairman Kim Jong-ryang will remain the second-largest shareholder with a 9% stake.

These major shareholders put their controlling stakes in the brokerage house up for sale to inject fresh liquidity into its hospital and property development firm, suffering from accumulated losses.

Hanyang Securities, regarded as a powerhouse in the investment banking and bond sectors, reported an operating profit of 46.3 billion won in 2023, up 24.5% from the previous year. The country’s 28th-largest brokerage house by equity capital earned 116.2 billion won in 2021 on the back of strong profits from property investments.

KCGI expects the acquisition of the brokerage to expand its business into the sales side. The PE firm took over Meritz Asset Management Co., now KCGI Asset Management, in 2023.

STOCK PARKING TALKS

KCGI has been touted as a strong candidate for the brokerage among bidders that include local fashion retailer LF Group and a consortium of KL & Partners and HXD Hwasung Development Ltd.

The firm hired the son of Hanyang University Foundation Chairman Kim while leaving a minority stake in Hanyang Securities to the foundation and the chairman instead of purchasing the foundation’s entire 16.29% stake, which could bring a management premium.

That spurred on talk of stock parking, an illegal practice of selling shares to another party with the understanding that the original owner will buy them back soon after, industry sources said. Neither KCGI nor sellers were available for comment on the matter.

Korea’s financial regulators are closely monitoring the deal.

“We are well aware of the talks of stock parking in the acquisition process of Hanyang Securities,” said a Financial Supervisory Service official. “We will thoroughly examine the deal once a major shareholder eligibility review is requested.”

Financial authorities are expected to ban KCGI’s takeover of Hanyang Securities if they find unlawful activities such as stock parking in the deal.

Write to Ji-Eun Ha and Ik-Hwan Kim at hazzys@hankyung.com
 
Jongwoo Cheon edited his article.