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Covering things Korean in London and beyond since 2006

JPMorgan Partners the next Lone Star?

Mando logoThat’s the question posed by the Chosun Ilbo last week.

The investment partnership formed to acquire a 73% stake of Mando, the Korean car parts maker, was ordered by the National Tax Service to pay $16 million in back taxes on dividends. JPMorgan Partners had a two-thirds share in this partnership. While the investment in Mando, at $446 million back in 2000, is a lot smaller than Lone Star’s KEB investment, it’s nevertheless substantial.

According to the Chosun, the NTS objects to the fact that the investment is held by a company, Sun Sage, which is established in the Netherlands, a jurisdiction with a favourable double tax treaty with the ROK – as was the case with Lone Star’s KEB holding. It appears that the NTS came to the conclusion that Sun Sage was a shell company and decided to look through to its more deep-pocketed backers.

Once again, the regulatory risk of private equity investment in Korea is highlighted, and the FT’s Lex column highlighted over the weekend the difficulties elsewhere in Asia.

The story is slightly complicated by the fact that JPMorgan Partners no longer exists. Badgered by stock analysts to get out of the private equity business, and aiming to reduce the potential conflicts arising when competing with clients for the same investment opportunities, JPMorgan recently spun off its JPMorgan Partners activity which, in Asia, became known as CCMP Capital Asia. And the waters are further muddied by the fact that it was the private equity know-how and management which JPMorgan spun off – JPM retained its interest in the underlying investments (including, presumably, its share of Mando). So if the NTS were looking for an entity who had benefited from the low tax rates on dividends since 2000, JP Morgan was probably a good starting point.

The case doesn’t look as complicated as the Lone Star / KEB case, where the purchase price of the KEB stake was called into question, but the Chosun points out a closer similarity with another Lone Star investment – the Star Tower in Seoul.

But to answer the Chosun’s question: probably not.


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