This article was displayed on Jan. 9, 2025, at 4:41 p.m. on the CHOSUNBIZ MoneyMove site.
The sale of Dongyang Systems, which was previously the IT institutional sector of Dongyang Networks and has been physically separated, has failed. It has been confirmed that SKS Private Equity (PE), the second-largest shareholder and a domestic private equity fund management firm, has effectively abandoned its investment.
According to the investment banking (IB) industry on the 9th, the bid for the management rights sale of Dongyang Systems conducted by the lead manager, Jeongin Accounting Corporation, was unsuccessful. It has been confirmed that there were no potential buyers participating in this bid. Since Dongyang Systems is undergoing corporate rehabilitation procedures, SKS PE, which would lose all of its investment if the company were sold to another buyer or proceed to bankruptcy, did not participate in the bidding.
Dongyang Systems is an IT specialized corporation founded in 1991 under the Dongyang Group. Subsequently, Dongyang Networks spun off its IT institutional sector in March 2020 to establish Dongyang Systems, and sold it to CEO Choi Jang-rim, a first-generation venture entrepreneur, inheriting all existing businesses and intellectual property rights (IP).
After acquiring Dongyang Systems, CEO Choi attempted to move away from the low-profit domestic system integration (SI) sector and shift towards new businesses. The company expanded its presence as a comprehensive trading company exporting domestic IT solution software (SW) as well as engaging in maritime IT business, including the development of shipping operating systems. In fact, Dongyang Systems expanded its business by securing a contract to supply container loading solutions to major European shipping companies.
SKS PE also recognized the growth potential of Dongyang Systems and began investing by acquiring redeemable convertible preferred stock (RCPS) in October 2022. RCPS refers to shares that have both a redemption right, which allows investors to request the repayment of the principal plus interest as maturity approaches, and a conversion right, which allows preferred shares to be converted into common stock.
Typically, in the corporate rehabilitation process, when a corporation is sold, new shares are issued to the acquirer, and existing shareholders' shares are canceled without compensation. Even if Dongyang Systems fails to sell and transitions to bankruptcy proceedings, shareholders effectively cannot recover any money, as recoveries will first be allocated to rehabilitation creditors and secured creditors.
Despite the urgent situation where the only way for SKS PE to recover its invested funds is to acquire Dongyang Systems, the firm decided to withdraw from the deal by not participating in this bid. It appears that SKS PE decided to abandon the already invested amount rather than inject additional funds for equity acquisition and operational normalization. According to the accounting firm's investigation report, Dongyang Systems' assets are approximately 5 billion won, with current liabilities at 15 billion won. The reported deficit reached 23.8 billion won.
The sales side is expected to pursue a method of entering into a private contract with interested buyers rather than conducting a competitive bidding process. They may look for a preferred buyer and sign a conditional investment agreement before proceeding with competitive bidding, a stalking horse approach. An IB industry insider noted, “The method of selling Dongyang Systems will likely be decided with court approval.”