Default of Equity
The VOGO Fund is on the verge of default for the first time among private equity funds (PEFs), as it has failed to repay 200 billion won (US$195.1 million) of debt borrowed during the acquisition of LG Siltron shares. The situation is likely to affect not only additional investment and M&As, but also the PEF market as a whole.
According to industry sources, the creditors of the VOGO Fund consisting of 10 financial companies recently notified the forfeiture of benefit of time without bond maturity extension. The companies are planning to discuss the disposal of the VOGO Fund’s LG Siltron shares (29.4 percent) on July 28. It is expected that the shares will be sold for the withdrawal of the loan.
The 10 financial firms, including Woori Bank and Hana Bank, lent the fund 225 billion won (US$219.2 million) in 2007, when it purchased 49 percent of LG Siltron shares along with the KTB PEF. The amount is divided into 95 billion provided by Woori Bank, 40 billion by Hana Bank, and 90 billion won by the others. That subject to forfeiture is 86.2 billion won (US$84.1 million), which is the money borrowed by the VOGO Fund’s offshore Korea Global Fund and the VOGO SHCP Special Purpose Company (SHP) on the security of 10 percent shares.
Fund collection is likely to be difficult, however, since no one is willing to take the shares of the loss maker. Besides, the global economy is still in the doldrums and corporate restructuring is at its peak. In the event of chain defaults in the PEF market, the entire banking sector could take a serious hit. The net asset value (NAV) of LG Siltron is estimated at zero by securities companies. The VOGO Fund, however, made its investment in LG Siltron via the special purpose company, and thus the loss is expected to be partial.
Still, the domestic PEF market is likely to shrink a lot, in view of the VOGO Fund’s representativeness as the first PEF raised in Korea. At present, a series of PEFs are facing maturity, with at least some difficulties associated with fund collection. The uncollected money of five year or older funds reached 6.116 trillion won (US$5.967 billion) as of the end of June this year.