Woori Financial Group, which suffered from the controversy over the 'forfeiture of the contract deposit' in the acquisition of Tongyang and ABL Life, has confirmed that it applied the same contractual terms to China's Multinational Insurance Group. Although only the condition that Woori Financial would forfeit the contract deposit of 150 billion won if Korean financial authorities opposed the acquisition was disclosed, the reverse stipulation included in the contract obliged Multinational Insurance to return the deposit and pay a commission if the Chinese authorities opposed the acquisition.
According to a report by ChosunBiz on the 6th, Woori Financial and Multinational Insurance included a clause in the contract concerning government intervention from both countries when they entered into a share purchase agreement for Tongyang and ABL Life last year. This clause contains an obligation for Multinational Insurance to return the deposit of 150 billion won to Woori Financial in the event that the Chinese authorities deny the acquisition. Additionally, Multinational Insurance is required to pay a further commission as compensation. The exact amount of compensation to be paid by Multinational Insurance has not been disclosed, but it is reported to be at a level similar to the deposit.
Previously, the Financial Supervisory Service only disclosed the forfeiture clause applicable to Woori Financial. This clause stated that Multinational Insurance would keep the deposit if Korean financial authorities opposed. As a result, there was a controversy over whether "Woori Financial could lose 150 billion won of national wealth due to an unfavorable contract." However, within the financial sector, some argued that if both companies imposed the same obligations for forfeiture of deposits and commissions, it was not an unfavorable contract for either side.
An investment banking industry source noted, "If both sides bear the same level of forfeiture obligations, it can be considered an equitable contract," adding, "Considering the characteristics of the Chinese market, where the authorities hold a strong influence, Woori Financial may have included such clauses to mitigate risk."
However, there are also criticisms that Woori Financial should have established a way to fully retain the deposit even in the event of opposition from Korean financial authorities. Currently, the FSS has uncovered various internal control failures within Woori Financial and plans to reflect these in its management evaluation. According to regulations for the supervision of financial holding companies, a holding company must receive a management evaluation grade of at least 2 to acquire a subsidiary. Given the cloudy outlook for the management evaluation and the absence of approval from financial authorities, the possibility remains that Woori Financial could lose the deposit of 150 billion won.
A former financial authority official, speaking on the condition of anonymity, stated, "Yim Jong-ryong, chairman of Woori Financial, has previously achieved management success by acquiring a securities firm during his tenure as chairman of NH Nonghyup Financial Group, and he is focusing on expanding the group's scale this time as well," adding, "He never anticipated that the holding company's management evaluation would come out at grade 3, which led to inadequate risk management."