Korean gov’t speeds up disposal of NXC shares

[Courtesy of NXC]

Game publishers and private equity fund managers from home and abroad, including the sovereign wealth fund of the United Arab Emirates, are eyeing to buy shares in NXC Corp., the holding company of South Korea’s video game maker Nexon Group.

About 60 officials from 30 companies, including private equity firms and venture capitals attended a recent investment briefing on national tax payment companies hosted by the Ministry of Economy and Finance and the Korea Asset Management Corp. (KAMCO).

The briefing was joined by major local securities and asset management companies such as Samsung Securities Co., Kiwoom Securities Co., and Eugene Asset Management Co.

The event garnered unprecedented attention because it included the stake of NXC, the parent company of Nexon, which is valued at 4.7 trillion won ($3.7 billion). Financial investors considering investing in the stake attended the event.

Earlier, the bereaved family of Kim Jung-ju, the late founder of Nexon, paid part of the inheritance tax with a 29.3 percent stake in NXC.

Tax payment in kind refers to paying inheritance tax with stocks or real estate. The National Tax Service evaluated the stake at 4.7 trillion won. The Ministry of Economy and Finance, since February, became the second-largest shareholder of NXC, which represents the highest value among the stocks used for tax payment in kind by the government.

The ministry has been considering efficient disposal methods.

Capital from the Middle East is mentioned as a major candidate for the stake acquisition. The region has been expanding investments in Korean content companies.

Crown Prince Mohammed bin Salman Al Saud of Saudi Arabia, in particular, is known to have a great interest in Nexon. The Public Investment Fund, the Saudi Arabian sovereign wealth fund led by the Crown Prince, recently acquired an additional 6,321,500 shares of Nexon listed on the Tokyo Stock Exchange.

The stake acquired since last year amounts to 10.23 percent of the total shares of Nexon’s Japanese subsidiary.

It was also reported that four institutional investors from the UAE are considering the Korean content industry as a key investment destination.

The investors include Mubadala Investment Co. PJSC, Abu Dhabi Investment Authority (ADIA), Abu Dhabi Development Holding Co. PJSC (ADQ), and the Abu Dhabi Investment Council (ADIC), who visited Korea in May.

[Photo by Han Joo-hyung]

During their visit, the officials discussed specific investment destinations for the agreed $30 billion investment in Korea, which was agreed upon in January. The government, which aims to secure tax revenue through the disposal of NXC shares, may propose the acquisition of NXC shares to UAE investors.

Some of the candidates that participated in the bidding for the NXC sale in 2019 are also reported to be considering investment in the latest NXC stake.

At that time, not only industry peers like Netmarble Corp. and Kakao Corp., but also domestic and international PEFs, such as Kohlberg Kravis Roberts & Co., Bain Capital Inc. and MBK Partners Ltd, participated in the bidding, competing for the sale of 98.64 percent of NXC shares, which was expected to be valued at 10 trillion won.

Various consortium compositions were discussed among the candidates, but the sale was canceled when the founder Kim withdrew his intention for the sale.

NXC is at the top of the Nexon corporate governance structure. NXC holds a 46.57 percent stake in Nexon Co. listed in Japan, and the Japanese subsidiary controls the Korean subsidiary.

Nexon is evaluated as a highly attractive company with significant investment appeal, with first-quarter revenue of 1.14 trillion won, up 36 percent from last year, and operating profit of 517.8 billion won, up 46 percent.

However, unlike the sale in 2019, which received the spotlight from the market, this stake does not include management rights.

The major shareholders are Yoo Jung-hyun, widow of Nexon’s late founder, and their two daughters, who hold 69.34 percent of the total shares.

Normally, for the sale of a minority stake in an unlisted company, measures are taken to ensure the recovery of investment funds, such as guaranteeing an initial public offering (IPO) within a few years.

However, the latest sale is limited in its ability to promise an IPO or similar measures as the government is leading the sale.