UPDATE 2-Bling meets K-pop: LVMH fund invests in Psy producer YG

Wed Aug 20, 2014 5:48am EDT

(Adds details, background)

By Joyce Lee

SEOUL Aug 20 (Reuters) - The private equity arm of French luxury goods giant LVMH will invest up to $80 million in South Korea's YG Entertainment Inc, which manages a stable of K-pop performers including "Gangnam Style" rapper Psy.

The investment is one of the biggest bets by a global fund in the "Korean Wave" of culture, including music, TV shows and consumer products like cosmetics, that has grown in popularity in Asia and globally. The move could also help accelerate YG's push into fashion.

YG and LVMH, the world's largest luxury goods maker, are also in talks for a strategic partnership, said Eai-Jin Song, who heads YG's investor relations team, declining to elaborate.

YG has previously said it will launch a joint venture fashion brand with Samsung Group fashion unit Cheil Industries this quarter. YG is also expected to enter the cosmetics business, partnering with China's Huanya Group and local makeup manufacturer Coson Co Ltd, analysts have said.

"I expect the investment would enable YG to enter the fashion industry. YG will be able to leverage its performers to expose and market fashion products," said Hong Jung-pyo, an analyst at Kiwoom Securities.

L. Capital Asia will invest 61 billion won ($60 million) in new preferred shares of YG and is in talks to buy another $20 million in shares from Yang Hyun-suk, the former K-pop star who founded YG and is its largest shareholder, according to a YG filing. It will become YG's second-largest shareholder.

YG is one of South Korea's three main K-pop talent agencies, with acts including Big Bang and 2NE1 and a market value of $690 million as of Wednesday's closing.

"It hasn't been that long that South Korean cultural projects have shown profit, but returns are improving and foreign investors are showing more interest, especially for success cases like YG," James Park, director-general at the Korea Venture Capital Association, said last week.

BEYOND MUSIC

LVMH and YG have worked together before.

When YG-managed rapper-producer G-Dragon, a member of Big Bang and a fashion icon, released his solo album in 2009, LVMH's Louis Vuitton was the clothing sponsor, the first time the luxury brand backed a South Korean singer.

Shares in YG had lost more than half their value from a 2012 peak before local media last week reported a possible investment by LVMH's funding arm, as investor concerns about the continued profitability from K-pop deflated previous bullish valuations.

However, it has been more proactive at diversifying beyond music than rival management agencies S.M. Entertainment and JYP Entertainment Corp.

Shares in YG rose 3.1 percent, beating a 0.1 drop in the wider KOSDAQ, ahead of Wednesday's announcement, and are up 13 percent since reports of the possible investment.

Yang has been a judge on talent search show K-Pop Star since 2011 and has led YG's nascent expansion into actor management. YG's artists are often seen as having a high level of creative control by the heavily produced standards of K-pop.

Earlier this month, Chinese internet portal Sohu.com invested 15 billion won in South Korean talent agency Keyeast Co Ltd through a subsidiary, becoming its second-largest shareholder. Keyeast manages Kim Soo-hyun, one of the stars of blockbuster K-drama "My Love from the Star."

(1 US dollar = 1,022.60 Korean won) (Additional reporting by Hyunjoo Jin; Editing by Tony Munroe and Matt Driskill)