SK Group, South Korea's No. 2 conglomerate, gave up its online retail platform 11Street Co. as financial investors are now able to sell off their stakes, including its management rights held by SK Square Co., the group's investment unit.
SK Square on Tuesday decided to give up the call options for 11Street’s stakes held by financial investors, according to investment banking industry sources. SK Square is the top shareholder of 11Street with an 80.26% stake.
SK Square raised 500 billion won ($387.3 million) from local private equity firm H&Q Korea Partners and Aeneas Private Equity in 2018 with a pledge to help them exit with profits through an initial public offering or other measures.
The company decided not to exercise the call options to purchase a combined 18.18% stake held by H&Q and Aeneas, which is expected to cost the principal and internal rate of return of 8%, as it failed to list or sell 11Street.
SK Square abandoned the options as an exercise could be a breach of trust to its shareholders as the corporate value of 11Street has tumbled. The value is estimated to have halved from 2.75 trillion won in 2018.
The board of SK Square’s directors also had to consider the backlash against losses it would cause to purchase shares at the price of five years ago. No executives dared to suggest exercising the options ahead of the group’s year-end management reshuffle.
DRAG-ALONG RIGHTThe decision provided the investors with drag-along rights, which enables them to force SK Square to join in the sale of 11Street. They are unlikely to sell the online retail platform at their desired values, however, as SK Square failed to dump the unit
despite a series of attempts.The local financial market was shocked by the decision since it indicated SK Group would give up 11Street’s management rights, according to industry sources.
The group has been raising money for affiliates from the financial market with similar investment structures including call options and drag-along rights. Limited partners such as pension funds, which invested in private equity funds, are keeping an eye on the issue.
“SK Group faces a risk to its reputation after giving up the call options,” said an investment banking industry source.
Write to Ji-Eun Ha at
hazzys@hankyung.com Jongwoo Cheon edited this article.
