[Edaily Marketin Hur Jieun Reporter] Texas Pacific Group (TPG), a global private equity fund (PEF) manager and the second-largest shareholder of Kakao Mobility, has filed for arbitration with the Hong Kong International Arbitration Centre (HKIAC) against the largest shareholder, Kakao Inc. ( Kakao(035720)). After Kakao’s board of directors opposed the listing of Kakao Mobility’s American Depositary Receipts (ADRs), TPG argued that the opposition constituted a breach of contract. With TPG now in its ninth year of investment and its exit path blocked, the firm has effectively played the litigation card.

According to investment banking (IB) industry sources on the 7th, TPG filed for arbitration against Kakao with the Hong Kong International Arbitration Centre on the 30th of last month. It is reported that TPG’s U.S. headquarters, rather than its Korean subsidiary, will directly handle the response to this arbitration. Under the rules of the Hong Kong International Arbitration Centre, Kakao, as the respondent, must submit a statement of defense within 30 days of receiving the notice of arbitration.

TPG first invested in Kakao Mobility as its first external investor in 2017 and made an additional investment in 2021. The consortium invested a combined total of approximately 640 billion won in two rounds, and as the investment period entered its ninth year, assessments emerged that the fund’s maturity extension had reached its limit. In the first half of this year, Kakao, Kakao Mobility, and TPG established a Shareholder Value Enhancement Committee and appointed a global lead underwriter for the ADR listing, making it appear that Kakao Mobility’s ADR listing was moving full steam ahead.

Invested

in 2017… but even the ADR listing fell through

However, the situation changed when Kakao’s board of directors opposed the ADR listing. Kakao’s board cited concerns over duplicate listings of subsidiaries, damage to the parent company’s shareholder value, and potential liability under U.S. securities laws as reasons for its opposition. In contrast, TPG countered that even though the plan involved liquidating existing shares without issuing new shares or spinning off business units, Kakao had violated the Shareholders’ Agreement (SHA), including its obligation to support the initial public offering (IPO).

The key issue is whether Kakao’s board’s opposition to the listing constitutes a breach of contract. TPG cites the clause stipulating that Kakao agreed to faithfully support the listing. Kakao, on the other hand, cites the government’s stance against dual listings and the fact that an ADR listing would only liquidate TPG’s stake—making it unlikely to benefit general shareholders—as reasons for its opposition. Previously, financial authorities had stated they would review dual listings under a “prohibition in principle, with exceptions allowed” policy. For Kakao’s board, this creates a conflict between its obligations to general shareholders and its contractual obligations to TPG.

While attention is focused on why TPG chose arbitration in Hong Kong over domestic courts, industry sources explain that this was already determined at the contract stage. An official from a private equity firm with experience in international arbitration explained, “In the dispute resolution clauses of shareholders’ agreements, the method—such as ‘resolution through court litigation’ or ‘resolution through arbitration at the HKIAC’—is often specified in advance at the time the contract is signed.” Arbitration is also the preferred method for global private equity firms, as proceedings are conducted in private and awards are enforced in accordance with international conventions.

Scope of “Obligation to Cooperate on Listing” Is Key… Attention on Kyobo Life Insurance Precedent

A widely known case of international arbitration between a financial investor (FI) and a major shareholder in Korea is the put option dispute between Kyobo Life Insurance and an FI. A consortium including Affinity Equity Partners and IMM Private Equity (IMM PE) held approximately 24% of Kyobo Life Insurance’s shares and exercised their put options in November 2018 when the IPO failed to materialize. When the FIs demanded that the company buy back the shares at 409,912 won per share, Chairman Chongjai Shin’s side contested the price, arguing it was unreasonable, and the dispute escalated to arbitration before the International Chamber of Commerce (ICC).

In its first award in September 2021, the ICC ruled that while the put option clause itself was valid, Chairman Shin was under no obligation to purchase the shares at the price proposed by the FIs. FI also argued that Chairman Shin had violated a clause in the shareholders’ agreement requiring him to exercise his best efforts to pursue an IPO, but this claim was rejected. Subsequently, in a second award issued in December 2024, the tribunal concluded that Chairman Shin must have a fair market price determined by an independent third party before repurchasing the shares from FI.

There are similarities with the TPG dispute. In both cases, the initial investment was premised on a return of investment through an IPO, and when the IPO fell through, the FI initiated international arbitration against the major shareholder based on contractual cooperation clauses.

The problem is that this precedent could work against TPG. Although Kyobo Life’s FI’s claim of a breach of the IPO cooperation obligation was not accepted, the FI ultimately secured an exit route thanks to a separate safety net—the put option. In contrast, TPG lacks a put option and must effectively stake everything on proving a breach of the cooperation obligation. Another burden is that Kakao has cited opposing grounds: regulations against dual listings and the interests of minority shareholders.

Whose side is time on

?
Time is the key variable. TPG is assessed to have reached a tipping point where it is difficult to continue extending the fund’s maturity, as its investment period has entered its ninth year. In particular, it will take several years to reach a final ruling from the Hong Kong International Arbitration Center. In the case of Kyobo Life Insurance, following the put option exercise date in November 2018, a first ruling was issued in September 2021 and a second ruling in December 2024, taking about six years to resolve the dispute. During that time, financial investors (FIs) continued to apply pressure—including the seizure of Chairman Shin’s shares—but it took a long time to recover their investments.

There is also speculation that this arbitration is more likely to be used as a bargaining chip rather than to await an actual ruling. For TPG, the arbitration filing itself serves as a way to pressure Kakao into cooperating with the IPO, while also demonstrating to fund investors that it is actively working to recover their investments. An investment banking industry source explained, “Since Kakao has disclosed that it may reconsider the matter in the interest of general shareholders, there is still room for negotiation.”