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Excessively leveraged investment strategies put VC firm under pressure
By Anna J. Park
Saehan Venture Capital plans to sell the entirety of its owned shares of Dunamu and Viva Republica to pay off an 80 billion won ($60 million) debt that matures this Thursday. Throughout this year, the company already paid a total of 4.5 billion won worth in interest for the 80 billion won debt.
According to the investment banking industry, Saehan Venture's founder and CEO Lee Jung-woo himself is holding negotiations with potential buyers to sell the shares.
The venture capital firm currently holds 215,000 shares of Dunamu, the operator of Upbit, Korea's largest coin exchange, and 1.24 million shares of Viva Republica, which has fintech giant Toss, and their values are estimated to be about 34.2 billion won and 54.6 billion won, respectively, according to their latest prices traded on local private stock exchange platforms.
Given that a considerable discount rate would be applied when all of the shares are sold at once, the venture capital firm is likely to suffer a significant loss, even if it succeeds at selling them all. Last year, Saehan Venture Capital injected a total of 66.7 billion won into acquiring the 215,000 shares of Dunamu, only to see the shares' value plummet by nearly half in just a year.
What is worse than sustaining the multi-billion won loss is that the venture capital firm might face a default crisis if it fails to sell the shares. As its cash assets stood at only around 560 million won at the end of last year, the possibility of repaying the loans by borrowing additional funds seems unlikely.
Entering this year, the company was hit with a drastic rise in global interest rates at a much faster rate than expected, along with heightened geopolitical uncertainties. As a result, the stake value of the Dunamu and Toss shares held by Saehan Venture, which had been assessed last year to be worth over 230 billion won, quickly plummeted to less than 40 percent of that in less than a year.
Market insiders attributed the firm's current liquidity crisis to its excessively leveraged investment strategies. The company actually took very aggressive investment strategies last year, reinjecting most of its money attracted through issuing corporate bonds and investment returns back into funds to invest in venture companies.
The company invested a total of 373.8 billion won into venture capital last year, the largest amount invested by a single venture capital firm in Korea. It accounted for nearly five percent of the country's total venture capital investments last year. The firm also has stock collateral loans for some of the local stocks it owns.
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