SOUTH KOREA Law and Practice Contributed by: Ie Hwan Yoo, Hang Jin Chang and Da Eun Jung, Kim & Chang
Kim & Chang 39 Sajik-ro 8-gil Jongno-gu Seoul 03170 Korea Tel: +82 2 3703 1114 Fax: +82 2 737 9091/9092 Email: lawkim@kimchang.com Web: www.kimchang.com
1. Market 1.1 Major Lender-Side Players
borrowers – owing, for example, to the tighten- ing of their lending criteria and the constrained liquidity in the acquisition financing market – such foreign credit funds were able to fill the gap in a number of transactions, since their more flexible lending criteria allowed for financings where more traditional players could not lend. Domestic private equity funds were previously restricted from investing in loan products under the FSCMA, but since the FSCMA underwent amendment in the second half of 2021 to permit such investment, the number of deals in which local credit funds have participated as lenders has steadily increased. 1.2 Corporates and LBOs Traditionally, corporate purchasers have mostly financed their acquisitions by issuing bonds or obtaining bank loans, in each case relying on their own credits. It was not until private equity funds became active in the Korean M&A mar- ket that the leveraged buyout structure became widely used for acquisitions. Corporate purchasers continue to rely primar- ily on the issue of equity, bonds or bank debt (on their own credit), while private equity funds
The most active parties in the South Korean acquisition finance market have been local com- mercial banks and domestic securities compa- nies on the lender side. International banks are fairly inactive in the Korean acquisition finance market for the following reasons: • firstly, the acquisition price is usually paid in the Korean currency, Won, and therefore loans extended for the purpose of financing acquisitions are usually made in Korean Won; and • secondly, loans taken out by Korean compa- nies from non-resident lenders are subject to Korean withholding tax in relation to interest payments and foreign exchange reporting requirements. It is worth noting that, in the last two to three years, private credit funds (both foreign and domestic) have come to play a more active role. In terms of foreign credit funds, despite their disadvantages vis-à-vis local financings noted above, as local commercial banks and securities houses could not fully service the needs of local
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