SOUTH KOREA Trends and Developments Contributed by: Yun Seok Jang, Yong Hee Kim, Gajin Choi, Dae Kun Jang and Seung Hyun Dennis Cho, Shin & Kim
it was unclear whether a PEF could issue an equity commitment under the Act in connection with a financing. However, the amendment clari- fied that a PEF is able to issue an equity com- mitment in connection with a loan, so long as a certain leverage ratio limit is complied with. Tender Offer Obtaining acquisition financing to fund tender offers has become a trend in the Korean mar- ket. Tender offers made for Ostem Implants and Lutronic in 2023 are examples of this trend, where the sponsor contemplated using the acquisition loan proceeds to partially fund the tender offer. Under the Financial Investment Services and Capital Markets Act (FSCMA), a tender offer report must be filed with the Financial Supervi- sory Service and the Korea Exchange before a tender offer is made. The filing must be accom- panied by documents evidencing that the funds necessary for the tender purchase have been secured. Until recently, Korean financial regulators required a potential tender offeror to deposit cash in a tender purchase account and submit documents relating to the account as evidence of secured funds. This cash deposit require- ment meant that the mechanism for securing and releasing loan proceeds for the tender offer had to be carefully negotiated and documented in order to ensure that the transaction could pro- ceed without any hiccups. However, in recent years, regulators have been willing to take a more flexible approach to secur- ing tender purchase funds before filing a tender offer report. More recently, financial regulators have announced that a letter of commitment issued by financial institutions may be recog-
nised, under certain circumstances, as evidence that the tender offer funds have been secured. Given such an announcement, it is expected that, in future, potential offerors will more fre- quently use a letter of commitment to evidence that the funds needed for a tender purchase have been secured. Fund Subscription Facilities Fund subscription facilities are a type of financ- ing arrangement commonly used by PEFs and other investment funds. These facilities enable funds to borrow capital from banks or other financial institutions, using the uncalled capital commitments of their investors as collateral. The primary purpose of these facilities is to provide liquidity to the fund, allowing the fund to make investments quickly without waiting for capital calls from investors. This is particularly useful in urgent transactions or for routine fund adminis- trative payments, and domestic PEFs have been increasingly taking note of these benefits. While fund facilities have become well-estab- lished in global transactions, their use in Korea has been somewhat limited until recently. How- ever, there has been a noticeable increase in the adoption of these financing structures in Korea, particularly for corporate-type funds (private equity funds exclusive for institutional investors). The first cases have emerged in 2024 and their numbers have been gradually increasing over the years. The growing interest can be attributed to several factors. • Urgent transaction needs – the ability to quickly secure funding for urgent transactions without waiting for capital calls from investors is a significant advantage.
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