Hana Financial Group Inc. said it is close to an agreement to buy a $3.7 billion stake in Korea Exchange Bank, potentially beating out rival suitor Australia & New Zealand Banking Group Ltd.
“We’ll likely sign a stake purchase agreement on Nov. 24 and it’ll be a binding one,” Hana’s Chief Executive Officer Kim Seung Yu said in a phone interview yesterday. Kim declined to comment on the price for the 51 percent stake held by Dallas, Texas-based Lone Star Funds or say how Hana will finance the purchase. Hana shares jumped as much as 14 percent, the biggest gain since March 2009.
The sale of Korea Exchange Bank pits Hana, which gets all its revenue from South Korea, against ANZ Bank, run by a former HSBC Holdings Plc executive and with operations in 15 Asian countries. Hana will pay as much as 4.8 trillion won for the stake, Yonhap News reported today, and ANZ Bank is unlikely to match an offer of that size, said a person with knowledge of the matter, declining to be identified.
“For ANZ, the KEB purchase would be one of many. But for Hana, it’s the only chance to grow,” said Ku Yong Uk, a banking analyst at Daewoo Securities Co. in Seoul. “The more desperate one who can expect more positives from the purchase would be willing to pay a higher price.”
Lone Star’s 51 percent stake in South Korea’s fifth-biggest bank is worth 4.2 trillion won ($3.7 billion), based on the latest share price. ANZ Bank CEO Mike Smith has bought assets in the region from ING Groep NV and Royal Bank of Scotland Group Plc since mid-2009 as part of a plan to expand throughout Asia.
Hana Financial rose 6.1 percent to 37,150 won as of 12:26 p.m. in Seoul trading after jumping as much as 14 percent. Korea Exchange Bank dropped 0.4 percent to 12,850 won, and the benchmark Kospi index lost 0.9 percent.
Hana will decide on the bid for either Korea Exchange Bank or Woori Finance by Nov. 26, Hana Chairman Kim said on Nov. 16. The Korea Deposit Insurance Corp., which owns 57 percent of Woori, may receive preliminary bids for South Korea’s largest financial company by assets by the end of this week as the government plans to privatize the firm.
Hana will hold a board meeting tomorrow to approve the purchase before making an official announcement, said a spokesman who declined to be identified, citing company policy.
‘Cheering Hana’s Decision’
“Investors seem to be cheering Hana’s decision to buy KEB rather than Woori as the KEB purchase would be less complex and eventually cost less,” said Hong Hun Pio, a banking analyst at KTB Securities Co. in Seoul.
Paul Edwards, a Melbourne-based spokesman for ANZ Bank, declined to comment beyond a Nov. 16 company statement, in which ANZ Bank said it was continuing due diligence for a possible acquisition.
Hana’s revived bid for Korea Exchange Bank -- four years after a previous attempt failed -- may help Lone Star end a five-year struggle to sell control of the Korean lender that’s been delayed by investigations into the circumstances of the fund’s 2003 purchase.
Purchasing Korea Exchange Bank may boost Hana’s assets to 316 trillion won from 200 trillion won, based on data from the companies as of Sept. 30. That is still less than Woori Finance Holdings Co.’s 332 trillion won and KB Financial Group Inc.’s 330 trillion won.
Korea Exchange Bank’s return on equity, a key measure of profitability, is 12 percent, higher than bigger local rivals including KB Financial Group Inc., whose ROE is 3.2 percent, compared with 5.7 percent at Shinhan Financial Group Co. and and 3.3 percent at Hana Financial, according to Bloomberg data. Korea Exchange Bank trades at a price-to-book value of 1.04, similar to KB Financial and Hana.
The reported 4.8 trillion won for the 51 percent stake in Korea Exchange Bank would be 15 percent higher than the current market price, based on today’s valuation.
“The credit implications for Hana Bank in the event of Hana Financial secures a bank are likely to be negative at least in the short term absent any external solution to address funding needs,” Moody’s Investors Service vice president Beatrice Woo wrote in a Nov. 22 report.
Lone Star, the U.S. buyout fund controlled by John Grayken, has tried for almost five years to sell its holding in Korea Exchange Bank as regulators examined the circumstances surrounding its investment in the Seoul-based lender.
HSBC in September 2008 abandoned a $6 billion purchase of Korea Exchange Bank amid a widening global financial crisis. That was the second blow to Lone Star after Kookmin Bank, now part of KB Financial, walked away from talks to buy 65 percent of Korea Exchange Bank in November 2006.
Since its 2003 purchase, Lone Star has recouped 1.87 trillion won of its total 2.15 trillion won investment in Korean lender through a block sale and dividends after tax, according to Korea Exchange Bank data.