The International Chamber of Commerce ruled against Kyobo Life Insurance Chairman Shin Chang-jae in a protracted legal battle with the company’s financial investors over a contentious put option.
A consortium of investors, represented by Affinity Equity Partners, announced Thursday that the ICC arbitration court sided with them, ordering Shin to repurchase their shares based on a valuation set by an external agency.
Under the ruling, Shin is required to appoint an independent valuator within 30 days to reassess the shares' price. Failure to comply would result in an indirect compulsory performance fee of approximately $2 million per day until the obligation is fulfilled.
The dispute between Shin and the investor consortium traces back to a 2012 agreement for the consortium's acquisition of a 24 percent stake in the insurer from the now-defunct Daewoo International for approximately 1.2 trillion won ($826.8 million). The deal included a clause allowing the consortium to exercise a put option, obligating Shin to repurchase their shares if the insurer did not go public by September 2015.
Following a continued delay of Kyobo Life's market debut, the consortium exercised the put option in October 2018, demanding just over 2 trillion won, or approximately 410,000 won per share. Shin, however, refused to comply and argued the valuation was inflated, prompting the investors to seek arbitration through the ICC.
In September 2021, the ICC court’s first ruling acknowledged the put option as valid, but did not require Shin to repurchase the shares at the consortium's proposed valuation.
The interpretation of this ruling remains disputed. Kyobo Life contends that, while the put option agreement itself was deemed valid, there is no obligation for Shin to act on it, as the ruling rejected the consortium's request to exercise the option at 410,000 won per share. The consortium, however, maintains the ruling was in its favor, affirming the validity of its right to exercise the put option.
Kyobo Life argues that the ICC's second ruling, which orders Shin to appoint a valuator, contradicts the first, undermining the arbitration system’s core principle of finality.
"International arbitration operates on a one-instance system, delivering final, binding rulings. However, the second panel contradicted the first ruling by ordering Chairman Shin to appoint a valuation agency while rejecting most of Affinity consortium's claims," the insurer stated.
The ICC's second ruling opens a new chapter to the legal battle, shifting the focus to share price determination. While the decision mandates Shin to appoint a valuator and reassess the price until the given deadline, it does not require him to repurchase the shares, suggesting the dispute over the put option’s execution will persist.
However, the ruling provides some relief to Shin, offering grounds to contest the investors on a lower price. Under the shareholder agreement, which stipulates the price should reflect fair market value, the share price is expected to fall well below the 410,000 won sought by the consortium, and likely below the 245,000 won per share the investors paid in 2012.
Back in 2018, when the Affinity consortium aimed to exercise its put option at 410,000 won per share, Kyobo Life received a pre-IPO market value estimate from Credit Suisse ranging between 180,000 won and 210,000 won — almost half of the consortium's demand.
Even considering the latest valuation of 198,000 won per share, at which Kyobo Life repurchased a 2 percent treasury stake in August 2023, the consortium is unlikely to exercise the put option at a price higher than its original investment.
The insurer stated that the recent ruling will not significantly impact the company. "The second arbitration outcome will not affect Kyobo Life's governance, and the company is fully committed to restoring any damage to shareholder and corporate value caused by the dispute."
