Global private equity giant KKR & Co. Inc. is embroiled in a management dispute over South Korea’s top solar power plant with key individual shareholders, local investment banking industry sources said on Friday.
KKR and South Korean private equity firm Lantern Advisory & Investments (A&I) agreed to buy a 100% stake in TACE Inc. for 10 billion won ($7.3 million) in 2021 from three shareholders while investing 190 billion won in the solar power plant operators through subordinated notes and convertible bonds (CBs).
Lee Jae-ho and Kim Sang-kwon, who each own 45% of TACE, along with Hwang Tae-hoon, who owns 10%, sought the deal to build a solar power plant on 6.15 million square meters (66.2 million square feet) of abandoned salt farms and ranch land on Anmyeondo, an island about 180 kilometers (111.8 miles) southwest of Seoul.
Those individual shareholders are seeking to raise 500 billion won in a refinancing deal through Hana Securities Co. to repay the bonds and force the private equity firms to exit their investments, according to the sources.
The shareholders also plan to pay back 296 billion won in senior loans.
GOVERNMENT APPROVAL
According to South Korean law, a change in the majority shareholder of a solar power plant operator requires government approval. The country does not permit such a change before the plant begins commercial operations.
The regulations prevented KKR and Lantern from immediately taking over the existing shareholders' stakes when TACE began operations in September 2023.
Trading information for KKR & Co. displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York (File photo by Reuters via Yonhap) The financial investors (FIs) faced another hurdle as Lee Seung-hoon, Lantern’s former CEO, was under investigation for allegedly embezzling from the TACE fund. Lee was also accused of spending profits from TACE on imported cars and other items. He was initially detained but has been released on bail.
The scandal obstructed the change in the control of TACE. The government refused to grant KKR and Lantern approval to acquire shares, although the power plant has already begun commercial operations. KKR and Lantern reapplied for approval on converting their CBs to common stocks at the end of last year. The authorities approved it only for the US private equity firm due to the scandal.
Lantern plans to try to get approval again while completely severing ties with former CEO Lee.
“The company’s earnings fell short of expectations due to the embezzlement case and the delayed change in majority shareholder,” said a source with knowledge of TACE. “The total system efficiency still does not meet the target level, although it has been operating for 22 months.”
IS THE DEAL VOID?
The individual shareholders said the original stock purchase agreement is void as the private equity firms failed to obtain the necessary approvals.
“We have received legal advice that there was an event that allowed us to terminate the stock purchase agreement with the FIs,” TACE shareholder Kim said.
The deal does not specify a clear deadline for completion, however. The FIs said the shareholders are using the delay as an excuse to break the contract and maintain their management rights as the company’s enterprise value has risen since commercial operations began.
The individual may face difficulties in refinancing for bond repayment, as KKR and Lantern obtained preemptive written consent rights for major decisions at TACE when they signed the takeover deal. Despite its fundraising, TACE is not allowed to repay the debts early without approval from the private equity firms.
Since the share purchase agreement between the individual shareholders and the FIs is still valid, any refinancing deal that involves a direct or indirect equity deal raises the possibility of dual transaction risk.
“Although the refinancing is not finalized, early bond repayment is legally possible regardless of the FIs’ consent rights,” Kim said.
Hana is working on the refinancing, although the FIs formally expressed concerns over dual transaction risk.
