A financial investor has effectively secured the controlling stake in SLL JoongAng, a core subsidiary of JoongAng Group valued as a merger-and-acquisition target worth around 1 trillion won. As a result, observers say that even if JoongAng Group—which has entered full-fledged rehabilitation proceedings—sells SLL JoongAng, it will end up with almost no cash to fund the group's reconstruction.
According to the investment banking (IB) industry Tuesday, SLL JoongAng's largest shareholder abruptly amended its shareholders' agreement with Praxis Capital (18.36%), a financial investor (FI), during the first half of this year. The core of the amendment involves the largest shareholder side, including Contentree JoongAng (53.82%), providing about 32% of the SLL JoongAng shares it held to Praxis as additional collateral.
The contract amendment is interpreted as a result of the delay in SLL JoongAng's initial public offering (IPO). Praxis Capital, which invested a total of 300 billion won in SLL JoongAng's convertible preferred stock (CPS) in 2021, had secured a clause triggering an interest rate penalty if the listing failed to take place within the originally agreed deadline. As the delayed listing subsequently pushed back the recovery of its investment, the two sides renegotiated, and the shareholders' agreement was ultimately restructured in a way that significantly strengthened Praxis Capital's collateral rights.
This share-collateral shackle is expected to emerge as a major variable in the restructuring, intertwined with JoongAng Group's court receivership proceedings. The previous day, the Seoul Bankruptcy Court issued rehabilitation commencement decisions for four JoongAng Group affiliates, including JoongAng Holdings, Contentree JoongAng, JoongAng P&I, and Megabox JoongAng. JoongAng Ilbo, which has entered a workout, is pursuing a sale of management control as part of its self-rescue plan.
The IB industry has long identified SLL JoongAng as a key asset for M&A ahead of rehabilitation approval. However, with the recent amendment to the shareholders' agreement transferring control of a significant portion of the shares to the FI side, analysts say the calculations for the asset sale have become more complex.
In fact, Praxis Capital, which now holds more than half of the shares by securing collateral rights on top of its existing stake, is expected to explore a sale on its own. However, as Contentree JoongAng's rehabilitation proceedings gain momentum, Praxis Capital will also likely have to solve a complex equation in negotiations with the court-appointed administrator and creditors.
The market currently values SLL JoongAng at around 1 trillion won. However, the prevailing analysis is that Contentree JoongAng will end up with almost no cash even if a sale materializes. Considering the 300 billion won principal invested by Praxis, plus the accumulated interest and penalty amounts, most of the sale proceeds could go toward repaying the FI's principal and interest. Tencent also holds a 10.11% stake in SLL JoongAng. Because of this structure, in which the benefits of a sale have disappeared, some observers expect that a mood may emerge among JoongAng Group and creditors to delay or block the sale of SLL JoongAng.
Corporate restructuring experts are paying attention to precedents in which companies attempted to split off and sell subsidiaries after entering rehabilitation proceedings, only to be blocked by collateral and unable to recover funds. In the case of Homeplus, the sale proceeds for its Express business plunged from the initially expected 700 billion to 800 billion won to around 120 billion won. Taeyoung Group also succeeded in selling Ecovit, its core subsidiary, for just over 2 trillion won, but was unable to recover a single penny of the proceeds because of collateral held by global private equity firm Kohlberg Kravis Roberts (KKR).
