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Change in Leading Investment & Securities Governance... 'Owner' Kim Choong-ho's Control Strengthened

[비즈한국] It has been confirmed that there has been a change in the governance structure of Leading Investment & Securities. The largest shareholder of Leading Investment & Securities is CKK Partners, with a 50.35% stake. It was confirmed that CKK Partners purchased and subsequently redeemed the redeemable convertible preference shares (RCPS) of Leading Investment & Securities held by LDS Partners last year. Additionally, LDS EC, which was the second-largest shareholder of CKK Partners, recently resolved to dissolve. LDS Partners and LDS EC have maintained a long-standing relationship, including borrowing significant funds from CKK Partners in the past.

Vice Chairman Kim Choong-ho's Line: The Framework of Leading Investment & Securities Governance

Leading Investment & Securities appeared on the M&A market in the early 2010s, but sale attempts fell through repeatedly. Eventually, in 2016, CKK Partners, a special purpose company (SPC) established under the leadership of then-Vice President of Leading Investment & Securities Kim Choong-ho, directly acquired the company. Vice President Kim Choong-ho became the owner of Leading Investment & Securities and currently serves as the Executive Vice Chairman.

The parent company of CKK Partners is KL Estate Co., Ltd., and Vice Chairman Kim Choong-ho is the largest shareholder of KL Estate. The governance structure of Leading Investment & Securities follows this path: 'Vice Chairman Kim Choong-ho → KL Estate → CKK Partners → Leading Investment & Securities'.

Subsequently, a company called 'LDS Value-Up' newly appeared on the list of Leading Investment & Securities shareholders. As of the end of 2020, LDS Value-Up held 12,243,575 common shares (9.15% stake) and 41,344,558 preference shares of Leading Investment & Securities. Leading Investment & Securities issued preference shares in the form of a paid-in capital increase in 2020, and LDS Value-Up acquired a large portion of the unsubscribed shares at that time.

LDS Value-Up was an SPC established by Dream Private Equity (Dream PE), which was founded by employees of Leading Investment & Securities. LDS Value-Up later sold the Leading Investment & Securities common shares to CKK Partners and the preference shares to LDS Partners.

It was confirmed that LDS Partners had borrowed a significant amount of money from CKK Partners. As of the end of March last year, the amount borrowed by LDS Partners from CKK Partners was 26.5 billion KRW. The amount invested by LDS Partners to purchase Leading Investment & Securities preference shares was 52.4 billion KRW. Essentially, half of the funds needed for the acquisition were borrowed from CKK Partners, the parent company of Leading Investment & Securities.

Attention is also drawn to LDS EC, which was the second-largest shareholder of CKK Partners. As of the end of June last year, LDS EC held a 25.06% stake in CKK Partners. Mr. Park, the CEO of LDS EC, is the same person as the CEO of LDS Partners. It is also confirmed that LDS EC borrowed over 8 billion KRW from CKK Partners. This highlights the close relationship between CKK Partners, LDS Partners, and LDS EC.

Governance Restructuring through RCPS Redemption and Dissolution

As a result of Bizhankook's investigation, it was confirmed that LDS Partners and LDS EC disposed of their holdings last year. First, LDS Partners sold its Leading Investment & Securities preference shares to CKK Partners via an off-exchange transaction in August last year. These preference shares were redeemable convertible preference shares (RCPS). RCPS include a conversion right to convert into common shares and a redemption right to demand repayment of the investment. It was confirmed that CKK Partners redeemed the RCPS rather than converting them into common shares. Subsequently, CKK Partners participated in a capital increase for Leading Investment & Securities, raising its stake to 50.45%.

LDS EC was confirmed to have dissolved in January of this year. Previously, in December last year, KL Estate's stake in CKK Partners increased by 22.44 percentage points (p) from 67.11% to 89.55%. This appears to be due to a decrease in CKK Partners' capital from approximately 15.9 billion KRW to 11.9 billion KRW, a reduction of 4 billion KRW. This 4 billion KRW matches the amount invested by LDS EC into CKK Partners. Since CKK Partners is a limited liability company where stock trading is not possible, the capital reduction is interpreted as part of the dissolution process.

In summary, LDS Partners and LDS EC, which borrowed money from CKK Partners, invested in Leading Investment & Securities and CKK Partners to secure stakes. Later, they either resold their stakes to CKK Partners and its affiliates or resolved to dissolve, leaving them with no shares currently. Consequently, Vice Chairman Kim Choong-ho's control over Leading Investment & Securities has been strengthened. An official from Leading Investment & Securities stated, "We ask for your understanding as this matter concerns major shareholders and is either difficult to ascertain or restricted from disclosure."