Private Equity in South Korea: Overview | Practical Law

Private Equity in South Korea: Overview | Practical Law

A Q&A guide to private equity law in South Korea.

Private Equity in South Korea: Overview

Practical Law Country Q&A 8-521-4346 (Approx. 16 pages)

Private Equity in South Korea: Overview

by Sungjo Yun, Mok H Kim, Daniel Joonwu Park and Vin Pyeon, Bae, Kim & Lee LLC
Law stated as at 01 Jul 2023South Korea
A Q&A guide to private equity law in South Korea.
The Q&A gives a high level overview of the key practical issues including the level of activity and recent trends in the market; investment incentives for institutional and private investors; the mechanics involved in establishing a private equity fund; equity and debt finance issues in a private equity transaction; issues surrounding buyouts and the relationship between the portfolio company's managers and the private equity funds; management incentives; and exit routes from investments. Details on national private equity and venture capital associations are also included.

Market Overview

1. What are the current major trends and what is the recent level of activity in the private equity market?

Market Trends

Since the introduction of private equity (PE) funds in 2004, the South Korean PE market has grown substantially, with the number of funds registered with the Financial Supervisory Service (FSS) increasing from two in 2004 to an all-time high of 1,060 in December 2021 (an increase of 24.9% just since December 2020).
In 2021, PE funds dominated the South Korean M&A market, with involvement in 85% of the top 20 largest deals. Although 2022 posed challenges (given the general economic downturn accompanied by high interest rates and inflationary pressures), PE deal activity remained relatively stable, with the largest deal of the third quarter being a landmark PE transaction worth USD1.5 billion by a buyout fund managed by a local PE firm Hahn & Company.
The strong dollar has given foreign PE funds an advantage in buyout deals, with a majority of deals priced at more than KRW500 billion in 2022 having involved a foreign PE fund. Smaller sized domestic PE firms are carefully watching market conditions as interest rates continue to climb, making it more challenging to meet the typical hurdle rates for South Korean PE funds.
The evolving regulatory regime has further facilitated the growth of domestic PE funds. The Financial Investment Services and Capital Markets Act (FSCMA) was amended, from October 2021, to re-categorise private funds into institutional funds and general funds, based on the type of investor rather than the investment target (see Question 3 and Question 11). Institutional funds are limited to qualifying institutional investors (and no individuals other than directors and investment management professionals of a general partner), including financial companies and listed companies meeting certain requirements, while general funds are open to individuals and general investors. References to PE funds are generally to institutional funds unless the context requires otherwise.

Fundraising

From a fundraising perspective, 2021 was a record year for PE funds, recovering from the disruption caused by the COVID-19 pandemic in 2020. The total commitment amount at the end of 2021 was KRW116.1 trillion, having increased by KRW19.4 trillion from 2020 (20.1%).
In 2021, South Korean venture capital (VC) funds also experienced a significant increase in fundraisings compared to 2020. As of December 2021, the amount of capital committed to new VC funds reached KRW9,217.1 billion and the number of new VC funds stood at 404.
Conversely, data from the first half of 2022 indicated a sharp decrease in fund-raising activities. The amount of newly committed capital for PE funds during the first quarter of 2022 stood at KRW2.7 trillion, which is about one-third of the KRW8.19 trillion committed during the fourth quarter of 2021. Interest rate rises have particularly affected smaller PE funds, as certain institutional investors have decided not to make new investments in 2022, particularly in project-based funds, and are rescheduling their fundraising to 2023.

Investment

The amount of dry powder (that is, money committed by investors but not yet allocated to a specific investment by the PE managers) hit KRW28.7 trillion in 2021, and will likely fuel investment activities in South Korea for years to come. Correspondingly, total investments made by PE funds in 2021 increased by KRW9.2 trillion from the previous year, amounting to KRW27.3 trillion. Of this amount, KRW22.9 trillion was invested in South Korean targets and KRW4.4 trillion was invested in overseas targets (KRW2.3 trillion in Europe, KRW1.6 trillion in Asia and KRW0.6 trillion in the US). Sector-specifically, KRW21.2 trillion (77.7% of the total amount) was invested in the following top five industries:
  • Manufacturing (KRW12.2 trillion).
  • IT (KRW4 trillion).
  • Finance and insurance (KRW2.3 trillion).
  • Wholesale and retail (KRW2 trillion).
  • Science and technology (KRW0.7 trillion).

Transactions

Among the representative types of PE deals in South Korea, from 2005 to 2019 the following types accounted for the following market shares:
  • Significant minority stake investments: 53.1%.
  • Buyouts: 41.2%.
  • Joint ventures: 5.7%.
While significant minority stake investments have been on the rise generally, PE funds have returned to buyouts more recently since 2016.
Leveraged buyouts are relatively rare in South Korea, due to the perceived risk of potential criminal liability, as it remains uncertain whether leveraged buyouts constitute a breach of directors’ fiduciary duties (see Question 19). Similarly, only a few public-to-private deals have ever been consummated in South Korea, with none in 2019, 2020 and 2021. However, there has been a voluntary delisting undertaken in May 2022 by Mom’s Touch, a major burger franchise that has subsequently been put up for sale in the market by its current PE fund owner.
Add-on or bolt-on investments have been one of the key strategies driven by the strong performance of South Korean PE funds. For example:
  • MBK Partners employed an "add-on" strategy by acquiring Accordia Golf in January 2017, followed by Next Golf Management in February 2019 and a 71% stake in Accordia Golf Trust in September 2020, recording a landmark deal worth about JPY400 billion.
  • Hahn & Company also deployed a similar tactic, more than doubling its profits from the sale of Woongjin Food by increasing its corporate value through acquisition of Dongbu Farm Gaya and Daeyoung Food.

Exits

Exits by PE funds at the end of 2021 were valued at KRW16.1 trillion, a 9% decrease from the previous year (KRW 17.7 trillion) due to delays caused by the aftermath of the pandemic.
While trade sales have traditionally been the main exit strategy for PE funds, secondary sale exits and initial public offerings (IPOs) are becoming increasingly popular, with some limitations (see Question 31).
2. What are the key differences between private equity and venture capital?

Sources

There is no material difference in the source of funding, other than that funds-of-funds financed by the government tend to play a key role in VC funding.

Fund Structure

PE funds are regulated under the FSCMA and are established as limited partnership companies.
Depending on the applicable law, VC funds are typically formed as partnerships (for example, as an SME start-up investment partnership under the Support for the Establishment of Small and Medium Enterprises Act).

Investment Stages

VC investment is typically focused on early-stage companies with growth potential. Later-stage investments in more established companies, including pre-IPO investments and buy-outs of listed companies, are largely made by PE funds.

Sector Focus

Regulation applicable to VC investments generally provides incentives for investment in companies in certain specific industries (for example, future technologies) or in entities of a particular size (for example, start-ups). As a result, VC funds tend to focus on these areas of investment.

Disclosure Requirements

Disclosure requirements applicable to PE funds apply similarly to VC funds.

Tax Treatment

PE funds are treated as corporations for tax purposes unless an election is made to be treated as a partnership subject to the partnership taxation regime (see Question 6).
VC funds are in the form of partnerships and are generally treated as pass-through entities for tax purposes. Underlying income flows through to investors and is taxed based on its original classification. Additionally, venture capital funds may qualify for certain tax exemptions, such as on capital gains arising on the transfer of shares held in target companies (see Question 4).

Funding Sources

3. How do private equity funds typically obtain their funding?
Following the 2021 FSCMA amendment, only institutional investors (for example, financial institutions) and similar entities meeting certain requirements can invest in institutional funds (see Question 11).
Financial institutions and large pension funds account for a majority of investments in PE funds.

Tax Incentive Schemes

4. What tax incentive or other schemes exist to encourage investment in unlisted companies? At whom are the incentives or schemes directed? What conditions must be met?

Incentive Schemes

While there are no tax incentive schemes specifically aimed at encouraging investment in unlisted companies, certain qualifying VC funds are eligible for tax incentives with respect to their investment into start-up companies or venture enterprises. In particular:
  • Capital gains derived from investment in start-up or venture enterprises may be tax exempt.
  • Withholding tax on dividend income can be deferred until that income is paid to each partner.

At Whom Directed

The tax exemption scheme is available for South Korean individual investors in VC funds that acquire new shares issued in start-up companies, venture companies, or start-up companies specialising in new technologies.

Conditions

To qualify for tax exemption on capital gains, VC funds must acquire newly issued shares in target start-up companies (under the Act on the Promotion of Venture Investment), venture companies (as defined under the Small and Medium Business Start-up Support Act), or start-up companies specialising in new technologies (under the Act on Special Measures for the Promotion of Venture Businesses).

Fund Structuring

5. What legal structure(s) are most commonly used as a vehicle for private equity funds?
PE funds are formed as “limited partnership companies," which have a separate legal personality under the law. Members of limited partnership companies are divided into:
  • General partners. General partners have unlimited liability for the fund's obligations to third parties. A fund manager is appointed from its general partners to represent and operate the fund.
  • Limited partners (that is, the investors). Limited partners are liable only up to their respective capital commitment amounts. Limited partners cannot participate in key decisions of the fund, including acquisition, holding, management and disposition of investments.
6. Are these structures subject to entity-level taxation, tax exempt or tax transparent (flow-through structures) for domestic and foreign investors?
A PE fund formed in South Korea is regarded as a corporation for South Korean tax purposes and is therefore subject to corporate income taxation with respect to its income. A PE fund can elect to be treated as a partnership for tax purposes, in which case corporate income tax is not imposed at the level of the fund vehicle, which is considered transparent for tax purposes, and gains or losses are allocated to and taxed at the level of each partner.
7. What foreign private equity structures are tax-inefficient in your jurisdiction? What alternative structures are typically used in these circumstances?
Foreign PE funds recognised as corporations for Korean tax purposes may be less tax-efficient than flow-through entities, since corporate income taxes may be incurred at the level of the fund. It may increase tax efficiency for a foreign PE fund to be structured as a partnership without legal personality, which are generally treated as being tax transparent for South Korean tax purposes. Foreign taxes paid through these foreign PE funds treated as a pass-through entity for South Korean tax purposes would be creditable at the South Korean limited partners’ level.

Fund Duration and Investment Objectives

8. What is the average duration of a private equity fund? What are the most common investment objectives of private equity funds?

Duration

The typical duration of a PE fund is ten years, and the average investment period is five years.

Investment Objectives

As in other jurisdictions, the general objective of PE funds is to maximise returns on investment, typically by acquiring a controlling or significant equity position in a company that appears to be undervalued but has high potential for growth and then increasing that company's value.

Fund Regulation and Licensing

9. Do a private equity fund's promoter, principals and manager require authorisation or other licences?
The manager of the PE fund must register with the FSS (which is the principal regulatory body with general authority over PE funds and their managers). The manager also submits information regarding its officers, directors, and control persons during the registration process.
If the manager is a financial institution, it must also obtain pre-approval from the Financial Supervisory Commission (FSC), the government authority which supervises the FSS.
10. Are private equity funds regulated as investment companies or otherwise and, if so, what are the consequences? Are there any exemptions?
PE funds are not considered investment companies (that is, an entity that manages, sells, and markets funds to the public). PE funds can only have under 100 investors.
11. Are there any restrictions on investors in private equity funds?
Following the FSCMA amendment in 2021 (see Question 1 and Question 3), only qualified institutional investors can invest in South Korean institutional funds, and institutional funds must have under 100 partners (investors). Qualified institutional investors are:
  • Financial institutions.
  • Certain publicly listed companies.
  • Foreigners who are professional investors.
  • Directors and investment management professionals of a general partner.
12. Are there any statutory or other maximum or minimum investment periods, amounts or transfers of investments in private equity funds?
There are no statutory or other maximum or minimum investment periods, amounts or transfers of investments, except the following statutory restrictions under the FSCMA:
  • If a PE fund’s limited partner is a director or investment management professional of the PE fund’s general partner or its parent company, it must contribute a minimum of KRW100 million.
  • A PE fund’s general partner cannot transfer its investment unless this is permitted under the articles of incorporation and sanctioned by the unanimous consent of all members, and a limited partner can only transfer its investment with the general partner’s consent.
13. How is the relationship between the investor and the fund governed? What protections do investors in the fund typically seek?
The relationship between the investor and the fund is governed by the terms of the fund's organisational documents, including its articles of incorporation.
Investors typically seek the following protections:
  • The ability to remove the general partner for cause.
  • The right to receive regular information (financial and otherwise) on the company's performance.
  • The right to participate in the partners’ meetings and advisory meetings.

Interests in Portfolio Companies

14. What forms of equity and debt interest are commonly taken by a private equity fund in a portfolio company? Are there any restrictions on the issue or transfer of shares by law? Do any withholding taxes or capital gains taxes apply?

Most Common Form

The most common form of PE investment is an equity interest (usually, common shares).

Other Forms

Redeemable convertible preferred shares, convertible preferred shares and convertible bonds are also popular forms of PE investment.

Restrictions

Transfers of shares are generally not restricted by law. However, on acquisition of new shares of listed companies, PE funds may be subject to statutory lock-up provisions, which restrict their ability to sell the shares for a certain period of time following the acquisition (see Question 31). Issuance of new shares must be approved by the issuer’s board.

Taxes

Foreign PE funds that are corporate vehicles may be subject to general corporate income tax in Korea with respect to any capital gains earned from the transfer of shares, if the fund itself is deemed to have a permanent establishment in Korea. If, however, foreign PE funds do not have a permanent establishment in Korea, withholding taxes apply at the rate of 22% on capital gains derived from the transfer or 11% of proceeds, whichever is less. These rates may be reduced under a relevant tax treaty.
Foreign PE funds that are treated as transparent entities for Korean tax purposes are not subject to withholding or capital gains taxes in Korea. The Korean limited partners of these funds are directly responsible for income taxes in accordance with the Korean Individual Income Tax Act.
Transfer of Korean shares is subject to securities transactions tax at 0.15% for shares listed on the Korean Stock Exchange and KOSDAQ, 0.1% for the Korean New Exchange (KONEX), and 0.35% for unlisted shares.

Buyouts

15. Is it common for buyouts of private companies to take place by auction? Which legislation and rules apply?
It is common for large buyouts of private companies to take place by auction in South Korea. Typically, the sell-side (usually through investment banks):
  • Issues a process letter (explaining the process of the auction and its rules) and information memorandum.
  • Seeks preliminary offers from potential buyers.
  • Short-lists the potential buyers to engage in the next stage of due diligence.
  • Selects the preferred bidder for final negotiations.
16. Are buyouts of listed companies (public-to-private transactions) common? Which legislation and rules apply?
Buyouts of listed companies (public-to-private transactions) are not as common as buyouts of non-listed companies in South Korea, and are typically subject to securities provisions in the FSCMA and listing regulations (KOSPI Market Listing Regulations or KOSDAQ Market Listing Regulations, as applicable).
PE funds undertaking buyouts of listed companies would consider acquiring a controlling stake and then obtaining the remainder of the company, which typically involves the mandatory tender offer process set out in the FSCMA. If a buyer obtains 5% or more of the shares of a listed company over-the-counter (that is, through a broker-dealer network rather than via a major exchange) from ten or more shareholders during a period of six months, the FSCMA provides that the buyer can only acquire the company through a tender offer.

Principal Documentation

17. What are the principal documents produced in a buyout?

Acquisition of a Private Company

Typically, the following principal documents are produced:
  • Non-disclosure agreement.
  • Share purchase agreement.

Acquisition of a Listed Company

Typically, the following principal documents are produced:
  • Non-disclosure agreement.
  • Share purchase agreement (certain terms may need to be publicly disclosed).
  • Tender offer-related documents, including tender offer statements (certain of which are publicly disclosed).

Buyer Protection

18. What forms of contractual buyer protection do private equity funds commonly request from sellers and/or management? Are these contractual protections different for buyouts of listed companies (public-to-private transactions)?
Depending on the nature of the transaction, PE funds commonly request the following forms of contractual buyer protection in acquisition agreements:
  • Purchase price adjustment or locked box provisions.
  • Conditions precedent (for example, merger filing clearance, entry into a shareholders’ agreement in agreed form, and appointment of buyer-appointed directors).
  • Representations and warranties (warranty and indemnity insurance is commonly used for larger-sized transactions, and the underwriting process is often initiated following completion of due diligence and concurrently with definitive document negotiations).
  • Access rights/interim operating covenants (that is, reasonable access to company books, records, and facilities, and a requirement that the company operates its business in the ordinary course and not take certain actions without the buyer’s consent between signing and closing).
  • No-shop provision.
  • Non-competition obligations.
  • General indemnification provisions, subject to limitations with respect to breach of representations and warranties and warranty and indemnity insurance (if applicable), other than in case of fraud.
  • Special indemnities for specific issues identified during due diligence.
  • Termination provisions (including if closing does not occur by a pre-determined long-stop date).
  • Break-up fee, which may be mutual.
  • Anti-dilution provisions on a weighted average basis.
These contractual protections are generally the same for buyouts of listed companies (public-to-private transactions).
19. What non-contractual duties do the portfolio company managers owe and to whom?
Under the Commercial Code, the directors of a company owe a fiduciary duty to the company (not to its shareholders or creditors). This encompasses, among other things:
  • Non-compete obligations.
  • Confidentiality obligations.
  • Restrictions on self-dealing.
Service agreements with directors commonly reflect the above obligations prescribed under law, together with a list of responsibilities specific to the role.
20. What terms of employment are typically imposed on management by the private equity investor in an MBO?
As MBOs rarely take place in South Korea, it is difficult to specify the terms of employment that would be typically imposed on management by the PE investor in an MBO.
21. What measures are commonly used to give a private equity fund a level of management control over the activities of the portfolio company? Are such protections more likely to be given in the shareholders' agreement or company governance documents?
For purposes of maintaining control over the activities of a portfolio company, PE funds generally appoint their representatives to the board. On acquisition of a significant minority stake, PE funds typically seek the following rights:
  • Board appointment/observer rights.
  • Information rights (for example, regular financial reports).
  • Consent rights with respect to actions that may adversely affect the value of the PE fund’s investment (for example, changes to the company’s capital structure, issuance of new shares, sale of major assets, and incurrence of material debt).
These protections are set out in the shareholders’ agreement or the governance documents: both forms are equally common.

Debt Financing

22. What percentage of finance is typically provided by debt and what form does that debt financing usually take?
The percentage of debt financing varies depending on the size of the deal, market conditions, as well as the PE fund backing the acquisition, but generally ranges from between 40% to 60% of the transaction value.
Under the FSCMA, the maximum leverage ratio permitted for a South Korean PE fund or its investment vehicle is 400% of equity.
Large acquisition financings generally involve not only a senior secured term loan facility and a senior secured revolving credit facility, but also a junior or mezzanine term loan facility. Although mezzanine debt is usually secured on the same assets as senior debt, through intercreditor arrangements, the mezzanine debt is subordinated to the senior debt.
Where foreign financial institutions are involved, a senior secured notes offering and a subordinated mezzanine notes offering (denominated in foreign currency and placed outside of South Korea) may also be an option, as interest income on the notes is exempt from withholding tax under the Special Tax Treatment Control Act. However, in recent debt financings in South Korea, only domestic financial institutions (including South Korean branches of foreign banks) have been major participants, and in this case, the facilities are denominated in South Korean Won and provided in the form of a syndicated loan.

Lender Protection

23. What forms of protection do debt providers typically use to protect their investments?

Security

Debt providers in acquisition finance generally protect their investment by taking security through a pledge over the borrower's:
  • Shares in the target company.
  • Bank accounts.
While several kinds of security available in debt financing, due to financial assistance concerns (see Question 24), the borrower generally provides its own assets as security, rather than those of the borrower’s subsidiaries (including those of the target).

Contractual and Structural Mechanisms

Contractual covenants are used to monitor the borrower's actions. These include:
  • Information covenants requiring the borrower to provide certain information such as financial statements relating to the borrower and/or the target company.
  • Affirmative covenants relating to the maintenance of the business and governmental authorisations, and negative undertakings restricting the borrower’s ability to incur additional debt, grant security, dispose of assets, or pay dividends.
The intercreditor agreement generally regulates the ranking of payments and security only among the senior and junior lenders, restricting payments of the junior debt ahead of the senior debt. It does not generally contain any provisions regulating payments by the borrower and its affiliates.
Lenders are protected in the following ways:
  • Shareholder loans advanced by the sponsors are subordinated to the debt advanced by external lenders.
  • Payment of dividends, or other issuance of debt or equity, is subject to mandatory prepayment of the senior and junior debt provided by the lenders.

Financial Assistance

24. Are there rules preventing a company from giving financial assistance for the purpose of assisting a purchase of shares in the company? If so, how does this affect the ability of a target company in a buyout to give security to lenders? Are there any exemptions?

Rules

It is generally unlawful for a company to give financial assistance in connection with the purchase by a proposed acquirer of its own shares. Breach of this prohibition, unless the exemption applies, can constitute a criminal and civil breach by the target's directors of their fiduciary duty.

Exemptions

The parent's acquisition debt obligations can be supported by provision of security over the target’s assets, or by a guarantee from the target, only if the target obtains "adequate" consideration from the parent (that is, the consideration should be equivalent to the exposure risks the Korean target has to bear of forfeiting its assets in case the parent defaults on the loan). According to Korean court precedents, the Korean entity's directors will be committing criminal and/or civil breach of the fiduciary duty they owe to the company if they fail to procure adequate consideration at the time they approve the provision of the security or guarantee. The Korean court focuses on the impact on the Korean entity in the overall context, taking into account structural and managerial benefits.

Insolvent Liquidation

25. What is the order of priority on insolvent liquidation?
In a bankruptcy proceeding, creditors’ claims take priority over shareholders', and generally rank as follows:
  • Claims which are prioritised as a matter of public policy (for example, tax claims and costs of the liquidation)
  • Secured claims.
  • Unsecured claims.

Equity Appreciation

26. Can a debt holder achieve equity appreciation through conversion features such as rights, warrants or options?
Debt holders can achieve equity appreciation by acquiring equity-linked securities, such as bonds with warrants or convertible bonds, and exercising the warrants or conversion rights under those bonds.

Portfolio Company Management

27. What management incentives are most commonly used to encourage portfolio company management to produce healthy income returns and facilitate a successful exit from a private equity transaction?
Management incentives commonly take the form of:
  • Share options.
  • Share appreciation rights.
  • Performance-based bonuses.
These will all be drafted as being from time-to-time, and will be subject to good leaver/bad leaver provisions. They are generally contractual in nature, and are not subject to approval by any regulatory authority.
28. Are any tax reliefs or incentives available to portfolio company managers investing in their company?
No specific tax reliefs or incentives are available to portfolio company managers investing in their company. A general partner is liable for corporate income tax on management fees but is exempt from VAT. Carried interest is treated as preferred dividend distribution to a general partner, and is similarly exempt from VAT.
29. Are there any restrictions on dividends, interest payments and other payments by a portfolio company to its investors?
Dividends can only be paid out of distributable income and (unless all shareholders agree otherwise) in proportion to the equity holding of the shareholder. Dividends are generally distributed annually, although interim dividends are available subject to certain conditions, including the requirement that there must be sufficient retained earnings from the previous financial year to cover the interim dividend and no reason for concern as to a deficit in the current year.
Subject to the fiduciary duties owed by directors of portfolio companies, there are no statutory restrictions on interest payments or other payments by a portfolio company to its investors.
30. What anti-corruption/anti-bribery protections are typically included in investment documents? What local law penalties apply to fund executives who are directors if the portfolio company or its agents are found guilty under applicable anti-corruption or anti-bribery laws?

Protections

Unless global PE funds are involved, anti-corruption/anti-bribery protections are not typically included in investment documents. However, this may become more prevalent in domestic transactions, as environmental, social, and corporate governance initiatives are gaining momentum.

Penalties

Fund executives are not automatically held liable by virtue of their position if the portfolio company breaches anti-corruption/anti-bribery laws, but may be subject to criminal penalties if they directed or aided and abetted the breaching conduct.

Exit Strategies

31. What forms of exit are typically used to realise a private equity fund's investment in a successful company? What are the relative advantages and disadvantages of each?

Forms of Exit

The most common form of exit used by PE funds is a trade sale, followed by secondary buyouts and IPOs. Secondary buyouts have recently been on the rise due to heightened PE activity in the market.
In addition to a third-party sale or IPO, VC funds may opt to realise their investment through exercising their redemption rights, if they invested through redeemable preferred shares.

Advantages and Disadvantages

Historically, exit by trade sale has proved to be the most advantageous route in terms of swiftly realising the entire investment and avoiding regulatory or public scrutiny.
While the IPO process may help maximise value and returns, PE funds have to navigate the regulatory restrictions in place, including any mandatory lock-up periods which may prevent the sale of the fund’s entire stake in the initial offering and delay the exit process).
The South Korea Exchange is increasingly scrutinising IPO applications submitted by PE-owned companies to see if, for example, there have been any excessive dividends payments to any PE fund shareholder(s) prior to the IPO. This is understood to be an initiative by the South Korea Exchange to protect minority investors in such companies following the IPO. Additionally, as an IPO exit's viability depends on market conditions, this form of exit has recently been less popular given the downturn in the IPO market.
32. What forms of exit are typically used to end the private equity fund's investment in an unsuccessful/distressed company? What are the relative advantages and disadvantages of each?

Forms of Exit

PE funds typically use a trade sale to exit an unsuccessful company if a buyer can be found, and generally do not resort to insolvency proceedings.

Advantages and Disadvantages

The main advantages of a trade sale are that the sale process is not be dictated by the court and there is no need to compete with other creditors. However, a key disadvantage is the difficulty in securing an appropriate and willing buyer in a timely fashion.
If insolvency proceedings are used, there is no need to seek out a buyer. However, the process is governed by the court, and other creditors’ rights are taken into account.

Reform

33. What recent reforms or proposals for reform affect private equity?
The FSCMA amendment which came into effect in October 2021 restructured the regulatory scheme governing domestic PE funds (see Question 11). Following the amendment, institutional funds have more flexibility in their fund operation and management. For example:
  • A lifting of the prohibition on investment unless there is participation in the management of the target’s business.
  • An increase in the limit on the amount a PE fund may borrow (from 10% to 400% of net assets).
  • In increase in the number of investors that can invest in private funds (from 49 to 100).

Contributor Profiles

Sungjo Yun, Partner

Bae, Kim & Lee LLC

T +82 2 3404 0196
E [email protected]
W www.bkl.co.kr
Professional qualifications. South Korea (1998); New York (2010)
Areas of practice. Private equity; mergers and acquisitions; foreign direct investment; outbound investment.
Non-professional qualifications. Seoul National University (LLB, 1995); Columbia Law School (LLM, 2006)
Recent transactions
  • Advised Affinity Equity Partners on its investment in Shinhan Financial Group.
  • Advised Macquarie PE on its investment in LG CNS.
  • Advised Anchor Equity Partners on its investment in LINE Games and Kakao Games.
  • Advised Kakao Mobility on raising investment from TPG.
  • Advised Unilever on its acquisition of Carver Korea.
Languages. Korean, English
Professional associations/memberships. Seoul Bar Association; New York State Bar Association.
Publications. Lexology Getting the Deal Through – Private Equity 2022 (Transactions, Fund Formation) - South Korea (Law Business Research).

Mok H Kim, Partner

Bae, Kim & Lee LLC

T +82 2 3404 0460
E [email protected]
W www.bkl.co.kr
Professional qualifications. South Korea (2004); New York (2014)
Areas of practice. Corporate; mergers and acquisitions.
Non-professional qualifications. Seoul National University (LLB, 2002); University of California, Berkeley School of Law (LLM, 2013)
Recent transactions
  • Advised Keppel Infrastructure Trust on its acquisition of Eco Management Korea Holdings.
  • Advised Macquire PE on its acquisition of Deokyang.
  • Advised Emart on its acquisition of eBay Korea.
  • Advised Affinity Equity on its acquisition of JobKorea.
  • Advised MBK Special Situation Fund on its investment in CJ CGV Asia business.
Languages. Korean, English
Professional associations/memberships. Seoul Bar Association; New York State Bar Association.
Publications
  • Lexology Getting the Deal Through - Private Equity 2022 (Transactions, Fund Formation) - South Korea (Law Business Research).
  • Lexology Getting the Deal Through - Private M&A 2022 - South Korea (Law Business Research).

Daniel Joonwu Park, Senior Foreign Attorney

Bae, Kim & Lee LLC

T +82 2 3404 1297
E [email protected]
W www.bkl.co.kr
Professional qualifications. New York (2011)
Areas of practice. Private equity; mergers and acquisitions; foreign direct investment; outbound investment; corporate.
Non-professional qualifications. University of Michigan (BA, 2005); Boston College Carroll School of Management (MBA, 2010); Boston College Law School (JD, 2010)
Recent transactions
  • Advised Anchor Equity Partners on its investment in Kurly.
  • Advised Affinity Equity Partners on its acquisition of JobKorea.
  • Advised SoftBank Vision Fund on its investment in Yanolja.
  • Advised MBK Partners on its investment in CJ CGV's Southeast Asian business.
  • Advised BRV Capital Management on its investment in LINE MAN Thailand business.
Languages. Korean, English
Professional associations/memberships. New York State Bar Association.
Publications
  • Chambers Global Practice Guides: Doing Business in… 2022 - South Korea (Chambers and Partners).
  • Lexology Getting the Deal Through – Financial Services M&A 2022 – Korea Chapter (Law Business Research).

Vin Pyeon, Foreign Attorney

Bae, Kim & Lee LLC

T +82 2 3404 7584
E [email protected]
W www.bkl.co.kr
Professional qualifications. New South Wales (2018)
Areas of practice. Private equity; mergers and acquisitions; foreign direct investment; corporate.
Non-professional qualifications. The University of Sydney (Bachelor of International and Global Studies, 2015); The University of Sydney (LLB, 2017); The College of Law (Graduate Diploma of Legal Practice, 2018)
Recent transactions
  • Advised Carlyle on its acquisition of A Twosome Place.
  • Advised SoftBank Vision Fund on its investment in Yanolja.
  • Advised Anchor Equity Partners on its investment in Kurly.
  • Advised Kakao Mobility on new share issuance to Carlyle, Google and TPG.
  • Advised Affinity Equity Partners on its investment in Shinhan Financial Group.
Languages. Korean, English
Professional associations/memberships. New York State Bar Association.