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Private Equity Funds Demand 1 Trillion Won Investment Refund from Shinsegae for SSG.COM

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Shinsegae Group's logo
Shinsegae Group’s logo


Shinsegae Group has become entangled in a dispute over a 1 trillion won (US$725.16 million) investment in its subsidiary SSG.COM by private equity funds (PEFs). With the delay in the listing of SSG.COM, there are signs that the PEFs are demanding a refund of the money.


According to investment banking sources on April 28, E-Mart and Shinsegae are currently engaged in last-minute negotiations with Affinity Equity Partners and BRV Capital Management, the financial investors (FIs) of SSG.COM, ahead of the commencement of the put option exercise on May 1, which refers to the right to sell shares at a specific price. Affinity and BRV have collectively invested a total of 1 trillion won in SSG.COM, with 700 billion won contributed in 2019 and 300 billion won in 2022, with each holding a 15 percent stake.


Shinsegae Group and the FIs entered into put option contracts at the time of investment. The terms stipulate that the group must buy back the holdings from the FIs at a predetermined price with a premium if SSG.COM’s gross merchandise value (GMV) does not exceed a certain level in 2023 or if it fails to meet conditions related to the initial public offering (IPO).


Shinsegae Group insists that SSG.COM has already met the promised conditions, rendering it ineligible for the exercise of the put option. On the other hand, the FIs argue that the put option remains valid as SSG.COM may have overstated its transaction volume through gift card transactions. If both parties fail to reach an agreement, there is a significant possibility of the dispute escalating into a legal battle.


During the prosperous days of SSG.COM, both Shinsegae and E-Mart, the major shareholders of SSG.COM, received continuous expressions of interest from PEFs. Some of these PEFs also made substantial investments. However, as competition intensified among domestic and international e-commerce platforms, the business performance of SSG.COM deteriorated, prompting a change in circumstances.


When Shinsegae attracted investments for SSG.COM, it pledged to achieve a GMV of over 5.16 trillion won by 2023. Last year, SSG.COM’s GMV surpassed 5.7 trillion won, seemingly fulfilling the promise on the surface. However, the FIs raised concerns about the calculation criteria for transaction volume. They argued that purchases of gift cards and similar transactions should be excluded from the transaction volume calculation as they cannot be considered substantive transactions.


There are also issues regarding the IPO conditions. Shinsegae should receive opinions from multiple securities firms indicating that listing of SSG.COM is possible before the put option exercise date even if SSG.COM does not actually succeed in an IPO. Since Shinsegae has already selected the lead underwriter, it argues that it has fulfilled this promise as well. However, the FIs oppose this, arguing that the “proposals” submitted by securities firms for the listing engagement cannot be regarded as “opinions.”


Industry insiders believe that even if the FIs were to have their put options acknowledged, exercising them immediately might not be easy. This is because it would be challenging for E-Mart and Shinsegae to immediately secure the substantial sum of 1 trillion won. If the situation escalates into a legal dispute, the recovery of the FIs’ investments will face even greater obstacles. Affinity, for instance, has been entangled in a legal dispute with Kyobo Life over put option issues for several years, resulting in delays in the recovery of investments. It appears that the FIs will employ a strategy to pressure Shinsegae into obtaining favorable conditions regarding the recovery of investments once their put options are acknowledged.


Shinsegae is reportedly conducting a comprehensive review of its business strategy related to SSG.COM in light of the current put option situation. SSG.COM is facing challenges in the domestic e-commerce market, and there are assessments indicating that Shinsegae has not fully capitalized on the synergy with Gmarket, which it acquired for 3 trillion won. Although Shinsegae contemplated merging SSG.COM with Gmarket, it is said to have been thwarted by opposition from the FIs. Internally, Shinsegae is also discussing options such as divesting from the FIs during this opportunity and restructuring the group’s online subsidiaries with SSG.COM at the center.


Due to the put option situation, there is speculation that Shinsegae may embark on restructuring measures such as selling stakes in its subsidiaries. Potential divestment targets include a minority stake in Starbucks, Shinsegae Food, and E-Mart 24.

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