[Exclusive] "You Said It Was Worth 3 Trillion Won"... ABLY, SC Securities Clash Over Advisory Fee for Alibaba Investment

Advisory fee lawsuit sparked by price gap between new and existing shares
SC Securities appeals after ABLY wins at first instance

ABLY Corporation, a fashion platform that announced it had secured an investment from China’s Alibaba Group at a valuation of 3 trillion won, is reportedly in a dispute with Standard Chartered Securities Korea (Korea SC Securities), which advised on the fundraising, over its advisory fee. Korea SC Securities argued that the company’s valuation should be calculated using only the price of newly issued shares, putting it at 3 trillion won. ABLY, however, contends that the valuation used to calculate the fee should also reflect the price of existing shares, putting it at about 740 billion won.

According to this newspaper’s reporting on Oct. 21, the Seoul Central District Court’s Civil Division 20, presided over by Judge Kim Mincheol, recently ruled against Korea SC Securities in a lawsuit seeking 4.95 billion won in contracted fees from ABLY.

Fees vary with company valuation... Per-share prices differ fivefold

The two sides signed an investment advisory agreement in September 2023. Korea SC Securities, a subsidiary of Standard Chartered Bank Korea, specializes in underwriting bond issuances and advising on mergers and acquisitions (M&A). The advisory fee had two components: 1% of the newly raised funds, plus an additional fee based on the company’s post-investment valuation. The additional fee was set at 950 million won for a valuation below 1 trillion won and 5.45 billion won for a valuation of 2 trillion won or more.

A Singapore-based affiliate of Alibaba Group subsequently invested in ABLY. It purchased about 20 billion won worth of newly issued shares and about 68.5 billion won worth of existing shares held by current shareholders. Proceeds from the new shares went to the company, while proceeds from the existing shares went to the shareholders who sold them. The sellers of existing shares included investment partnerships managed by NH Investment & Securities and Kolon Investment.

The issue centered on the per-share price. Existing shares were priced at about 3.65 million won each, while newly issued shares were priced at about 18.26 million won, five times as much. Calculating the value of all shares based on the price of the new shares puts the post-investment valuation at about 3.02 trillion won. By contrast, calculating it based on the prices of both transactions lowers the valuation to about 737.5 billion won.

Korea SC Securities argued that “the advisory agreement covered a transaction involving the issuance of new shares to bring fresh funds into the company” and that “the fee should be calculated based on the price of the new shares.” ABLY’s representative countered that “the investment combined new and existing shares” and that “the price of the existing shares should also be taken into account.”

Korea SC Securities sought about 6.215 billion won, including fees and value-added tax, but ABLY paid only about 1.265 billion won. In the lawsuit Korea SC Securities filed to recover the difference, the issue at trial was not the fee equal to 1% of the newly raised funds, but the fee that varied according to the company’s valuation.

First-instance court examines contract and negotiations: “Existing-share transaction must also be reflected”

The first-instance court ruled in ABLY’s favor. Although the contract set the basis for calculating the fee as the “post-investment company valuation,” it did not specify how to calculate it. The court therefore said it was necessary to consider both the circumstances in which the contract was signed and the actual investment structure.

The court noted that Korea SC Securities had proposed an investment structure combining the issuance of new shares with the sale of existing shares from the outset. The contract also contained no provision stating that the valuation should be calculated using only the price of the new shares or excluding the price of the existing shares.

The negotiations likewise treated the new and existing shares as a package. When ABLY asked Alibaba to raise the valuation based on the price of the new shares from 2 trillion won to 3 trillion won, the parties discussed discounting the existing shares more heavily. Buying the new shares at a higher price while acquiring the existing shares at a lower price would allow Alibaba to maintain its average purchase price per share. This was understood as an effort to secure recognition of a higher valuation publicly while keeping the investor’s actual purchase costs unchanged.

The two transactions were also contractually linked. The terms made it impossible to complete either the purchase of new shares or the sale of existing shares on its own. The court concluded that, given the transactions had been negotiated and carried out together, it would be difficult to calculate the advisory fee based solely on the higher price of the new shares.

The court ruled that “calculating the valuation advisory fee based on a blended company valuation that appropriately reflects the full amounts of both the new-share issuance and the existing-share sale is consistent with the parties’ true intent as expressed in the advisory agreement at issue.” Accordingly, it found that ABLY was not required to pay any additional advisory fees beyond the amount it had already paid.

Korea SC Securities appealed, and the two sides will renew their dispute in the second-instance trial.

This content was produced with the assistance of AI translation services.