[Edaily Marketin YunJi Kim Song Seung-Hyeon Reporter] KDB Investment (formerly KDB Investment) has completed its exit—recovering its investment—from Cosmax, a cosmetics original design manufacturer (ODM), three years after investing in the company. Although the initial plan to recoup the investment through an initial public offering (IPO) of its Chinese subsidiary fell through, the company reportedly achieved a return of around 10% by recovering its principal and profits in accordance with the repayment terms agreed upon at the time of investment. Observers in and outside the capital markets have praised this outcome, noting that it not only delivered a solid return but also fulfilled the investment’s original purpose of supporting mid-sized companies’ expansion into overseas markets and the globalization of K-Beauty.

According to the cosmetics and investment banking (IB) industries on the 28th, the fund jointly managed by KDB Investment and Hana Securities recently completed the process of recovering its investment in Cosmax East. Cosmax East is an intermediate holding company overseeing Cosmax’s China operations, with subsidiaries including Cosmax China and Cosmax Guangzhou.

KDB Investment and Hana Securities had previously invested 114.3 billion won in Cosmax East in 2023 through the “KDB-Hana Business Restructuring Value-Up Private Equity Partnership.” At that time, the two firms acquired 3,811,778 shares of redeemable convertible preferred stock (RCPS) issued by Cosmax East at 29,986 won per share.

At the time, KDB Investment executed the investment with the aim of supporting the overseas business expansion of mid-sized companies while enhancing the global competitiveness of K-Beauty firms. Given that Cosmax was expanding its global cosmetics ODM business based on its overseas production and sales networks—including those in China—the decision was made to support the expansion of its China operations by providing funding to Cosmax East.

However, rather than relying solely on growth potential, the firm also prepared for variables that might arise during the investment recovery process. From the outset, KDB Investment structured the deal to allow for different recovery methods depending on whether Cosmax East proceeded with an IPO. If the IPO were to proceed, the firm would realize investment returns based on the increase in enterprise value driven by the growth of the China business; conversely, if the IPO were to fall through, it would be able to demand that Cosmax repurchase the shares at a price reflecting the agreed-upon rate of return. In effect, this approach left open the possibility of maximizing returns through an IPO while simultaneously protecting against downside risk by ensuring a certain level of return in the event the IPO failed.

These exit conditions remained in place even after the investment structure changed. In March 2025, Cosmax East conducted a capital reduction against the RCPS held by KDB Investment and Hana Securities and issued new convertible bonds (CBs) in the same amount of 114.3 billion won. Although the investment vehicle shifted from equity securities to CBs, the basic structure—involving the Cosmax East IPO and the associated recovery of investment funds—remained unchanged.

However, since Cosmax East failed to meet the requirements for a stock exchange listing, the original plan to recover the investment through an IPO was derailed. With the parent company, Cosmax, already listed on the KOSPI market, the issue of duplicate listings—arising from the core Chinese subsidiary seeking a separate stock market listing—served as a major obstacle. Consequently, KDB Investment and Hana Securities reached an agreement with Cosmax to recover their investment by having Cosmax East redeem the convertible bonds early, before the listing deadline expired. Since the investment agreement explicitly stipulated the IPO deadline and the redemption terms in the event of a failed listing, the redemption process reportedly proceeded without any disputes. In effect, the downside protection mechanism established at the time of investment was activated during the actual exit process.

The funds required for the redemption were provided by the parent company, Cosmax. According to electronic disclosures and other sources, Cosmax decided to take out a short-term loan of 100 billion won on the 1st of this month and subsequently lent 110 billion won to Cosmax East. Cosmax East utilized the funds received from its parent company, along with dividends secured from its Chinese subsidiary, to make an early redemption of the convertible bonds held by KDB Investment and Hana Securities.

San-eun Investment completed its exit by securing a return of nearly 10% on top of its principal investment through this redemption. Although it did not realize the full increase in enterprise value originally expected from an IPO, it secured a certain level of profit based on the redemption terms established in anticipation of the IPO’s collapse.

From Cosmax’s perspective, this redemption has also alleviated the burden of a dual listing for its Chinese operating subsidiary. In fact, Hanwha Investment & Securities analyzed that this early redemption of the convertible bonds simultaneously resolved Cosmax East’s IPO obligation, the overhang from financial investors’ (FI) conversion rights, and the burden of additional financing costs. The firm further explained that, as the Chinese business continues to grow and the need for a separate listing has disappeared, there is now greater potential for the value of the Chinese operations to be reflected more directly in the parent company, Cosmax.