South Korea easing PE rules

The country is seeking to become more aligned with global standards regarding private equity fund establishment and operation, although US firms still may be hit with a new capital gains tax on exits.

While US private equity firms are still potentially facing new tax hikes in South Korea, the government is also reportedly planning on easing other regulations to attract more foreign investment.

The South Korean Financial Services Commission said this week that it has hired private research institutes and commissioned a study on revising rules covering the establishment and operation of a private equity fund in the country, according to Dow Jones. The FSC said the goal would be to bring its current stricter regulations in line with those in other countries.

A decision on what its new rules will look like will be announced after the study is concluded in April.

While such news will be welcomed by foreign investors, South Korean tax authorities are still considering imposing a capital gains tax on US private equity firms exiting deals in the country. The proposal has come up partly in response to a dispute involving an investment by private equity firm Lone Star in a domestic bank, as well as recent exits by US firms The Carlyle Group and TPG, which made billions of dollars on Korean investments without paying taxes.

Such a move could potentially cause foreign capital to retreat from South Korea even as it is becoming a major source of buyouts in Asia. The country was the site of the region’s largest private equity buyout deal of 2009 when Anheuser-Busch InBev, the world’s largest beer company, agreed to sell South Korea’s Oriental Brewery to Kohlberg Kravis Roberts (KKR) for $1.8 billion in May.

The availability of local leverage in South Korea has also led to increased exit opportunities as well, with mid-sized companies being sold at multiples to revenues to strategic buyers and other private equity firms. Whether such deals will come at a higher price for US firms is still to be determined.