When KKR announced its largest-ever quarter for exits in 2Q26, HD Hyundai Marine Solutions ranked high among the standout realisations. The South Korean vessel services business was spun out by its shipbuilder parent five years ago in anticipation of an IPO. KKR paid USD 582m for a 38% stake and rode the upside following a 2024 listing to complete its exit in July with a 7.5x return.

Anyone looking to replicate the framework of this success story might be disappointed. Regulations introduced in August may amount to an outright ban on listed Korean conglomerates taking privately held subsidiaries to IPO, if applied as strictly as many fear.

It has left dozens of PE investors with stakes in such businesses pondering how they might extricate themselves from positions that may never see liquidity. TPG Capital is arguably the most prominent example, having sought liquidity for Kakao Mobility via an American Depository Receipt (ADR) listing only to see the proposal shot down late last month by the board of parent company Kakao.

“Over the past several years, these deals have been a large part of Korean private equity investment, typically chaebol carve-outs, growth capital for group affiliates, and structured pre-IPO rounds with a qualified IPO (Q-IPO) deadline,” said Heesug Chung, a senior foreign attorney at Bae, Kim & Lee.

“You can no longer count on an IPO as the base-case exit strategy when making such investments. The harder cases are those where investments were made before the new rules under the assumption an IPO would be available, and it hasn’t happened yet. Where such investment relied mainly on a Q-IPO as the exit, disputes would likely increase.”

Several investors suggested worst-cases scenarios involving litigation over redemption rights as investors try to force exits via buybacks and sales of stagnant positions at deep discounts. Equally, they accepted the regime may ultimately prove navigable.

A tougher sell

Public markets have never been an exit channel of note in Korean private equity. Sponsor to sponsor sales and trade sales are responsible for USD 90 out of every USD 100 in exit proceeds since 2020, according to AVCJ Research. Their respective shares are close to parity, placing sponsor to sponsor in an unusually strong position for an Asian market over a sustained period.

Jaewon Choi, a managing director and co-lead of Korea at Alvarez & Marsal, observed that sponsor to sponsor accounts for a significant portion of deals he works on across all private equity-linked M&A. This is considered an indicator of market maturity and broader consolidation within the asset class.

PE-backed IPOs portray a lumpiness found at every stage of private equity in Korea. There have been 30-40 offerings per year since 2017 with annual average proceeds of USD 2.8bn. Intermittent spikes capture the seven occasions that companies have raised more than USD 800m. Lowering the bar to USD 300m widens the selection to just over a dozen, several of which claim listed conglomerate parents.

They include LG CNS, which went public in February 2025, K Bank, which listed a few months prior to the regulations coming into effect. Both LG CNS and K Bank saw earlier IPO attempts fall short.

LG Corporation sold a minority stake in LG CNS to Macquarie Asset Management in 2019, while KT Corporation-backed K Bank raised capital from the likes of Bain Capital and MBK Partners in 2021. In each case, the investors are said to have secured contractual provisions requiring an alternative liquidity event if a listing didn’t happen within a set period.

“It’s material and significant issues that have been weighing on the IPO market already this year and on private equity activity,” a Korea-based lawyer with a global law firm said of the new rules.

“It’s not a complete ban – exceptions can be made pending certain procedures and approvals. As the rules are in the first phase, companies are wary of attracting a lot of attention.”

The regulations on split listings is part of a broader government push to eliminate the “Korea discount” phenomenon whereby listed companies trade below global peers because of perceived governance weaknesses. Specifically, it is intended to stop family-owned conglomerates pursuing spinout IPOs that ride roughshod over minority shareholder rights.

“By listing the subsidiary, you are effectively taking money away from the parent that is already listed,” said one Korea-focused buyout investor. “The government doesn’t want the chaebols to grow at the expense of others.”

Listings by conglomerate affiliates – where the parent owns at least 20% or an entity one step removed from the parent owns at least 50% – are required to reach a higher bar.

First, parent company boards must observe their fiduciary responsibilities by assessing the impact of the split listing on shareholders and establish shareholder protection mechanisms such as in-kind dividends and cancellation of treasury shares. All this should be communicated to shareholders. Further notification is required on how the board voted on the listing proposition.

Moreover, subsidiaries should demonstrate a degree of independence from the parent in operations and management and shareholder consent is mandatory for certain spinout types. Getting consent is tough: approval from a majority of voting rights present at the meeting and at least 25% overall. Voting rights of individual shareholders are capped at 3%, even if they own more than 3% of outstanding shares.

Exit options

It is difficult to ascertain how broadly the regulations impact private equity. AVCJ Research has records of more than 500 existing expansion and pre-IPO investments in Korea dating from 2015 to the present. A minority involve subsidiaries of listed conglomerates, but they include deals running to the hundreds of millions of dollars and involve various well-known corporate groups – not least Kakao.

“Kakao has been a major source of carve-out-IPO transactions, and it is one of the reasons the debate started in the first place. It will be extra careful before doing other deal with this structure, and it remains a relevant target because units like Kakao Entertainment face similar issues to Kakao Mobility,” said the lawyer with the global law firm.

Ride-hailing business Kakao Mobility has secured more than USD 800m in funding from the likes of TPG and Carlyle. Investors ranging from Anchor Equity Partners to GIC have pumped close to USD 1bn into Kakao Entertainment and related entities, while Anchor has supported music platform Kakao M and Kakao Piccoma, a webtoon business formerly known as Kakao Japan.

PE-backed subsidiaries span Korea’s consumer, technology and industrials heartlands. E-Mart, a listed subsidiary of Shinsegae, controls Starbucks Korea, which counts GIC as a shareholder. Private funding has also spread into Naver’s Web3 and digital payments platforms, Hanwha Corporation’s advanced materials unit, and Lotte Corporation’s logistics business.

TPG, Kakao Mobility’s second-largest shareholder, took a majority of seats on a shareholder value enhancement committee established earlier this year to review exit options for financial investors. The private equity firm hoped an ADR listing was the answer, but Kakao’s board cited conflicts of interest that could adversely affect its own shareholders as reason for nixing the deal.

Chung of Bae, Kim & Lee warned that an overseas listing isn’t necessarily a workaround because the rules apply irrespective of geography. At the same time, he doesn’t rule out IPOs completely, merely stating that investors face a difficult, time-consuming and expensive journey getting there.

“The IPO route remains open in principle. For high-profile subsidiaries, though, it now comes at the cost of a shareholder-value package at the parent level, and that cost can affect valuation, timing and overall exit economics,” Chung added.

Meanwhile, traditional exits are still available: trade sales, sponsor to sponsor sales, buybacks, recapitalisations, even restructuring companies into more listable forms.

Several buybacks have been completed in the last couple of years as IPOs failed to materialise. Glenwood Private Equity has secured two exits in the past two years via this route, first CJ Olive Young and then SK Ecoplant. If amicable, buybacks proceed smoothly. Otherwise, they can be protracted and contentious, testing the robustness of contractual redemptions.

“How many investors actually negotiated put options when they made investments in chaebol subsidiaries?” asked the Korea-focused buyout investor.

Best practices

In future, closer attention is expected to be paid to downside protection in such investments. This could drive increased adoption of redeemable convertible preference shares, exchangeable or convertible bonds, and preferred equity, with the parent guaranteeing liquidity.

Chung also predicts closer engagement with parent groups from the outset to ensure alignment of interest on deal structure and exit optionality and greater emphasis on “listability” during due diligence. This would cover areas such as how the subsidiary was formed – spinoff or acquisition – and its level of dependence on the parent, measured by share of revenue and operational involvement.

Choi of Alvarez & Marsal points to challenges on the vendor side as well. He experienced this first-hand when working on a recent portfolio optimisation project for a Korean conglomerate. The increased emphasis on shareholder rights has made boards more conscious of the consequences of the fact they will be held accountable for decisions that result in suboptimal outcomes.

“One of the most meaningful barriers was delivery risk,” he said. “The company was listed and had to carve out subsidiaries that were profitable but wouldn’t be core to the business in the future. It was difficult to execute, and the new rules will make these situations even more difficult.”

There will inevitably be a period of adjustment as implementation guidelines establish what can be achieved under the new rules and best practices are developed for pre-IPO deals.

Indeed, private equity could ultimately emerge as a beneficiary. If spinning out businesses and raising growth capital with a view to a listing become less appealing, conglomerates might opt for full divestments to financial investors instead. Having control over the asset and the exit path is seen as allowing more scope for value creation, potentially leading to better returns.

Meanwhile, those agitating for liquidity from long-held positions must be patient. “If you’re holding a minority a position in one these subsidiaries, you’re going to be stuck for a while,” said a second Korea-focused buyout investor.