KB Financial Group Inc. bid for ING Groep NV’s South Korean life insurance business and may enter the race to take over Woori Finance Holdings Co., Chairman Euh Yoon Dae said.
KB Financial, owner of the country’s largest bank, has the capacity to borrow 5 trillion won ($4.4 billion), Euh, 67, said in an interview yesterday in Seoul. The company has almost 2 trillion won in free cash flow, according to data compiled by Bloomberg.
“We have enough money,” Euh said. “If both are feasible and economically excellent options, we’ll go for both.”
KB has slumped 29 percent in Seoul in the two years through yesterday since Euh became chairman as Woori surpassed KB in assets and Hana Financial Group Inc. acquired Korea Exchange Bank. ING, led by Chief Executive Officer Jan Hommen, is selling the Asian units separately from European operations as the region’s debt crisis damps divestment prospects there.
Euh, who was the president of Korea University before he became chairman of KB, said he would also consider setting up joint ventures in South Korea with rival bidders for ING’s operations, such as Manulife Financial Corp. KB will pay out its excess capital in dividends if it fails in its acquisition plans, he said.
“Having $2 billion-plus assets of life insurance would have a big impact on diversification,” Euh said. “It will help in changing the composition of our business.”
Manulife, Korea Life Insurance Co. and KB are among firms that made second-round bids for the ING Asian insurance assets, said three people with knowledge of the matter. Manulife offered to buy most of the regional unit, while Korea Life bid for ING’s Southeast Asian business, said the people, asking not to be identified because the information is private.
“I’m not sure whether the pursuit of two deals at the same time is feasible or good for KB,” said Han Sang Soo, a fund manager at Seoul-based Samsung Asset Management Co., which oversees the equivalent of about $100 billion. “It would be tough for KB to soothe opposition from employees and shareholders in buying Woori and that could make the purchase more expensive than the chairman is predicting.”
Shares of KB dropped 2.1 percent to 35,350 won at 1:31 p.m. in Seoul. The stock’s two-year slide since Euh took office compares with the 5.1 percent gain in the benchmark Kospi index and the Korea Financial Industry Index’s 19 percent decline.
Asked to grade KB under his leadership, Euh said the company has lagged behind rivals.
Performance has been “acceptable, but not brilliant because stock prices have gone down, though not only because of the international influence of European banks,” he said. “Comparably, I don’t think we’ve done better than other Korean companies and banks.”
Still, he predicted KB’s businesses would improve considerably from 2014 on lower borrowing costs and better asset quality.
KB is looking at the possible takeover targets as a way to ease dependence on commercial banking in South Korea, which accounts for about 90 percent of its earnings, Euh said.
Profit from its Kookmin Bank unit totaled 524.7 billion won or 87 percent KB’s consolidated earnings of 603.2 billion won in the quarter ended March 31.
“In terms of business portfolio, Woori is better than us because they have a balanced business between retail and wholesale,” Euh said. “And they have an IB business, the second in the industry.”
South Korea plans to take preliminary bids for its 57 percent stake in Woori on July 27, in a third attempt to divest holdings in the country’s biggest financial group by assets.
Based on yesterday’s closing price of 11,350 won a share, the government’s stake in Woori is valued at 5.2 trillion won.
The company, whose operations include brokerage, asset management and insurance, was established in 2001 after rescued banks and financial firms were merged into the nation’s first financial holding company in the wake of the 1997-98 Asian currency crisis.
“Our principle for investment is that we look for opportunities where the value of current stockholders will increase,” Euh said. “We’ll not invest for the sake of size or just for diversification. The price should be right, otherwise we will not invest.”
If he proceeds with the takeover, he’d like to make the deal in a “welcoming atmosphere” in society, Euh said. Bank employees and some politicians urged the government to delay the sale until a new administration takes over next year.
South Korea’s bank employees union, which includes KB’s Kookmin Bank union, voted last week in favor of a one-day strike on July 30 to protest the government’s sale of Woori as it fights for higher wages and job security. The workers will extend the strike if their demands aren’t met, the union said at the time.