Seoul court upholds Affinity's Kyobo Life valuation

A South Korean court on Thursday ruled in favor of Affinity Equity-led financial investors (FIs) in Kyobo Life Insurance Co., rejecting Kyobo's claim that the investors had unfairly inflated its valuation to sell their shares back to the unlisted insurer for a higher price.  

The verdict by the Seoul Central District Court comes as Kyobo has been at odds with the Affinity-led group, including Singapore's GIC, Baring Private Equity and IMM Private Equity, which have been unable to exit their 1.2 trillion won ($1 billion) investment in the insurer for a decade.

With their dispute showing no signs of ending, the ruling could further delay the initial public offering of the country's third-largest life insurer, which last December applied for a preliminary review of its IPO.

"If we employ other valuation methods not used by Deloitte Anjin, Kyobo Life would be valued at 429,000 won, higher than its estimate," a judge said in his verdict. 

"It is difficult to claim the Affinity-led consortium used a valuation tool in their favor."

With no progress in Kyobo’s IPO efforts, the Affinity-led group in late 2018 called on Kyobo Life top shareholder and Chairman Shin Chang-jae to buy back their shares at 409,000 won apiece, or about double their purchase price. They valued the insurer at around 8 trillion won, far above the market estimate of 3 trillion to 5 trillion won. 

Rejecting the demand, Shin filed a complaint against two employees of the consortium and three accountants of Deloitte Anjin last year and argued their valuation of Kyobo was based on a falsified financial report.

Alongside the allegations, prosecutors demanded up to one and a half years in prison for five people, respectively, involved in the valuation process.

But the Seoul district court cleared the accused of the charges against them.

The decision comes after the International Chamber of Commerce (ICC), the world's leading arbitral institution, dismissed the investors' proposal to sell back each of their Kyobo shares at 409,000 won to the insurer in September of last year.

But the Paris-based institution approved their rights to exercise their put options on Kyobo shares granted in September 2012.

Following the court's ruling, the Affinity-led consortium said it would go to the next round of arbitration with Kyobo Chairman Shin to resolve the dispute over the put options.

"Since the legitimacy of the FIs’ put option and the valuation report has been confirmed ... the odds of success are heavily against Chairman Shin," it said in a statement. 

IPO ON THE TABLE

Kyobo was aiming to go public this year. But the Korea Exchange delayed its review for Kyobo's preliminary IPO application pending a court decision on the case, which the bourse operator said could affect Kyobo's governance structure.

Back in 2012, Affinity Equity, GIC and two other financial investors acquired a combined 24% stake in Kyobo for 1.2 trillion won from then Daewoo International Co., currently POSCO International. 

The share purchase included a put option, which they were allowed to exercise to Chairman Shin, if Kyobo failed to go public by September 2015.

(Updated on Feb. 11 to add comments from the Affinity-led consortium) 

Write to So-Ram Jung and Hyun-Ah Oh at ram@hankyung.com
Yeonhee Kim edited this article