Legal Complications on Put Options on SSG.Com to Result in Ongoing Concerns for Emart and Shinsegae

• Emart and Shinsegae are facing concerns about put options of nearly 1 trillion won on private equity investors' investment in SSG.com nearly six years ago.

• From AEP and BRV's point of views, they want to get their money back through put options since an IPO is not likely in the near term.

• The most probable result appears to be that this is likely to be dragged on for some time, which will cause continued concerns on both Emart and Shinsegae.

Back in October 2018, the Shinsegae Group received 1 trillion won (US$740 million) investment for its SGG.com e-commerce business unit, which has been aimed at combining the e-commerce businesses of Emart and Shinsegae under the SSG.com brand.

Private equity funds including Affinity Equity Partners and BRV each injected 500 billion won (combined 1 trillion won) into SSG.com which was valued at 3.3 trillion won. In the past five years, SSG.com has not lived up to its expectations, especially due to tough competition from companies such as Coupang (CPNG US) and Kurly.

Currently, the major shareholders of SSG.com are as follows:

• E Mart Inc (139480 KS) - 45.6%

• Shinsegae (004170 KS) - 23.4%

• Financial institutional investors (AEP and BRV) - 31.0%

Photo by Mark König on Unsplash

Our View (Conclusion First)

In our view, SSG.com's valuation now is much lower than 3.3 trillion won it was valued at nearly six years ago. SSG.com's value is likely to be less than half of the value that the AEP and BRV originally paid for. Therefore, from AEP and BRV's point of views, they want to get their money back through put options.

However, it appears that Emart and Shinsegae may not be willing to quickly grant them to exercise their put options. It may take time for Emart and Shinsegae to sell some assets to pay for the put options.

The most probable result appears to be that this burdensome situation is likely to be dragged on for some time, which will cause continued concerns on both Emart and Shinsegae. Remember, Emart and Shinsegae have market caps of 1.7 trillion won and 1.6 trillion won, respectively. Thus, to pay back 1.0 trillion won is a lot of money.