Shinsegae Group Chairman Chung Yong-jin speaks during an event to welcome its new employees in Seoul, Feb. 26. Yonhap

Shinsegae Group is under mounting pressure to return a 1 trillion won ($727.4 million) investment from two foreign funds as the group's struggling e-commerce arm continues to delay going public amid plummeting revenues, according to industry officials Monday.

Shinsegae, Affinity Equity Partners and BRV Capital Management are currently engaging in the last-minute negotiation over the funds' potential move to exercise a put option — the gist of which is to demand Shinsegae acquire the investors' shares in SSG.com unless the e-commerce affiliate of Shinsegae obtains an opinion from multiple investment banks that the company is ready for an initial public offering (IPO).

Under the put option contract, SSG.com should also achieve a gross merchandise volume (GMV) of 5.16 trillion won by 2023. The term is used frequently in online retail, referring to the total amount of sales by a certain firm during a specific period of time.

Affinity and BRV together acquired a 15 percent stake in SSG.com between 2019 and 2022.

If the financial investors exercise the put option, there stands a possibility that Shinsegae will end up buying back the SSG.com shares at a higher price.

But both sides remain poles apart over the detailed conditions regarding the put option. SSG.com says its GMV last year topped 5.7 trillion won, but the financial investors took issue with the figure, as Shinsegae included sales of its gift certificates. The investors say the transaction on gift certificates should be excluded from the GMV calculation.

In 2021, SSG.com designated Mirae Asset Securities and Citigroup as lead underwriters for its planned IPO. But the financial investors have urged Shinsegae to take more concrete steps for the listing of SSG.com.

An official at Shinsegae Group said both sides are in talks to fine-tune the details over their differences.

"Shinsegae Group will continue negotiating with the investors regarding the issue until April 30, [as was stated in the contract]," a spokesperson at Shinsegae Group said, declining to comment further.

The financial investors can exercise the put option from the beginning of May 2024 to April 2027 unless Shinsegae meets the two requirements — the GMV target figure and IPO plans for SSG.com — by the end of this month.

Given SSG.com's falling revenues and unfavorable market circumstances, the company is unlikely to proceed with its planned IPO.

According to data from the Financial Supervisory Service, SSG.com has suffered chronic deficits for the past few years, hit by toughening market rivalry.

The firm's operating loss reached 103 billion won in 2023. The loss also came in at 111.2 billion won the previous year.

Industry officials said the possibly upcoming tussle between the two sides will end up creating a lose-lose situation for both parties.

"In Korea, few companies have so far written a successful IPO story after receiving investment from Affinity," an official from a local financial firm said. "The tactic is frequently used by the Hong Kong-based private equity firm. But if both sides fail to narrow their differences, this will end up causing losses to both sides."