Investment and brokerage firm Mirae Asset Securities has filed a claim for 100 billion won (approximately US$75 million) in damages against South Korean game developer Smilegate RPG. The situation is somewhat confusing and in some places raises questions, so we will describe it in the most understandable language.
In 2017 and 2018, before the release of MMORPG Lost Ark, private asset management company Rhinos Asset Management invested approximately 26 billion won in Smilegate RPG and received convertible bonds. The investment and brokerage financial company Mirae Asset Securities acted as an intermediary and guarantor. According to the terms of the contract, the first batch of bonds was to be repaid by November 2023, and the second by April 2024.
In 2019, Smilegate RPG redeemed 30% of its bonds, leaving 70% as convertible bonds (a security that can be converted into company shares). As a result, Rhinos Asset Management planned to make money either by selling shares on the stock exchange or making a profit from dividends.
An important condition of the contract was that Smilegate RPG would begin the listing process on the condition that the company’s net profit would exceed 12 billion won in the previous year when the remaining bonds were repaid. And this is where things get interesting.
Rhinos requested the listing process because it determined that profits in 2022 exceeded the agreed upon figure of 12 billion won. In turn, Smilegate RPG began the procedure and requested an audit of its business by the financial authorities of South Korea. And unexpectedly, it turned out that according to accounting papers in 2022, Smilegate RPG suffered a net loss of 142.6 billion won (approximately 106 million US dollars). And there can be no talk of listing.
In addition, a representative of Smilegate RPG complained about the difficult situation in the gaming industry, the economic crisis and other problems. The company is discussing and preparing for a listing, but will pursue it based on market realities and its operating results. And when this will happen and whether it will happen at all is unknown.
After reviewing the financial audit, Rhinos agreed to a net loss. But, according to them, “it’s just an accounting problem” and the real situation for Smilegate RPG is much better. Smilegate RPG wanted to repay the bonds at an annual rate of 3.5%, but Rhinos Asset Management did not agree to such terms.
As a result, in November 2023, Mirae Asset Securities filed a lawsuit against Smilegate RPG at the Seoul Central District Court. This case became known only a couple of days ago, and financial analysts are quite skeptical about the success of this process. In addition, if this claim is satisfied, a precedent will be created that could affect investment activity in South Korea.
