Key Takeaways
- • LS Securities committed 20 billion won as a limited partner to the Kiwoom Brain AI Power Private Equity Limited Partnership, a fund in which roughly 96.3% of capital is earmarked for LS Cable & System exchangeable bonds (EBs), according to a filing reported by Chosunbiz.
- • The fund's total committed capital is 187 billion won, with 180 billion won slated to acquire 180 billion won of the 500 billion won private EB issuance by LS Cable & System, with the purchase set for the 27th.
- • The fund's EB take-up was raised by 50 billion won from 130 billion won at the time of the November issuance disclosure, per the article's comparison of filings.
- • The structure was chosen over a direct bond purchase, which LS Securities made in March this year for 20 billion won, because the exchange target is an affiliate's shares, a move that could otherwise trigger voting-right restrictions under Korean financial and fair-trade rules.
- • Industry sources quoted in the article say the arrangement effectively helps an affiliate raise funds, while LS Securities says its legal review found no problems and treated the commitment as a related-party transaction for internal disclosure.
Summary
LS Securities will put 20 billion won into LS Cable & System's exchangeable bonds through a private equity fund, according to the Financial Supervisory Service's electronic disclosure system as reported by Chosunbiz on the 21st. The company's board approved the commitment on the 13th, with the capital going to the "Kiwoom Brain AI Power Private Equity Limited Partnership." Kiwoom Private Equity and Brain Asset Management are the general partners.
The fund's total committed capital is 187 billion won, of which 180 billion won is set to acquire LS Cable & System EBs on the 27th out of a 500 billion won private EB issuance. The article notes that this means 96.3% of fund capital will go into a single affiliate instrument, with the remaining 7 billion won covering three years of management fees and expenses. LS Securities' stake in the fund is about 10.7%, and its commitment equals about 2.3% of its equity capital of roughly 878.7 billion won.
The EB carries a zero coupon and zero yield to maturity and is exchangeable into 1,851,851 common shares of Gaon Cable (000500) at 270,000 won per share. The article points out that investors only profit if Gaon Cable's share price exceeds the exchange price, a risk it characterizes as significant. The fund's planned take-up rose from 130 billion won when LS Cable & System disclosed the issuance on the 11th of last month, a change of 50 billion won.
LS Securities had previously bought LS affiliate bonds directly, including 20 billion won of LS Cable & System bonds in March this year. The article reports that the indirect route was chosen because the exchange target is an affiliate's shares. Direct acquisition followed by exercise of the exchange right could leave the securities firm holding affiliate shares, potentially triggering voting-right limits under the Financial Investment Services and Capital Markets Act and the Fair Trade Act. Article 34 of the Financial Investment Services and Capital Markets Act generally restricts financial investment firms from acquiring securities issued by major shareholders or their affiliates.
An unnamed financial investment industry source described the commitment as formally a non-affiliate fund investment but said it effectively helps the affiliate raise funds. LS Securities said it completed a legal review and found no problems. A company representative said the investment secures a revenue source as semiconductor stocks cool and power stocks perform well, and described Gaon Cable as a promising stock. LS Securities also treated the commitment as a possible related-party transaction for LS Cable & System and made an internal-transaction disclosure under the Fair Trade Act. The resolution passed with unanimous approval from directors in attendance.
The fund's total committed capital is 187 billion won, of which 180 billion won is set to acquire LS Cable & System EBs on the 27th out of a 500 billion won private EB issuance. The article notes that this means 96.3% of fund capital will go into a single affiliate instrument, with the remaining 7 billion won covering three years of management fees and expenses. LS Securities' stake in the fund is about 10.7%, and its commitment equals about 2.3% of its equity capital of roughly 878.7 billion won.
The EB carries a zero coupon and zero yield to maturity and is exchangeable into 1,851,851 common shares of Gaon Cable (000500) at 270,000 won per share. The article points out that investors only profit if Gaon Cable's share price exceeds the exchange price, a risk it characterizes as significant. The fund's planned take-up rose from 130 billion won when LS Cable & System disclosed the issuance on the 11th of last month, a change of 50 billion won.
LS Securities had previously bought LS affiliate bonds directly, including 20 billion won of LS Cable & System bonds in March this year. The article reports that the indirect route was chosen because the exchange target is an affiliate's shares. Direct acquisition followed by exercise of the exchange right could leave the securities firm holding affiliate shares, potentially triggering voting-right limits under the Financial Investment Services and Capital Markets Act and the Fair Trade Act. Article 34 of the Financial Investment Services and Capital Markets Act generally restricts financial investment firms from acquiring securities issued by major shareholders or their affiliates.
An unnamed financial investment industry source described the commitment as formally a non-affiliate fund investment but said it effectively helps the affiliate raise funds. LS Securities said it completed a legal review and found no problems. A company representative said the investment secures a revenue source as semiconductor stocks cool and power stocks perform well, and described Gaon Cable as a promising stock. LS Securities also treated the commitment as a possible related-party transaction for LS Cable & System and made an internal-transaction disclosure under the Fair Trade Act. The resolution passed with unanimous approval from directors in attendance.
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