November 27, 2024

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KDB Life Insurance's headquarters in Seoul (KDB Life Insurance)

Korean private equity fund KDB-Consus Value has selected Hana Financial Group as the preferred bidder to acquire KDB Life Insurance, according to state-run policy lender Korea Development Bank on Thursday.

Back in 2010, the PEF was established jointly by KDB and Consus Asset to buy a controlling stake in what was formerly known as Kumho Life Insurance -- now KDB Life Insurance -- for 650 billion won ($514.5 million).

On July 7, the PEF accepted bidders who are willing to acquire a 92.73 percent stake in KDB Life Insurance. Hana Financial Group was the only company that submitted a letter of intent for the acquisition in this recent bidding.

Industry insiders say Hana has entered this acquisition bid to strengthen its position in the insurance market. Hana Financial Group currently has two insurance firms -- Hana Life Insurance and Hana Insurance -- under its arm.

However, both companies are relatively small in scale in the Korean market. As of last year, the total assets of these two companies amounted to 6 trillion won and 1.5 trillion won, respectively.

Acquiring KDB Life Insurance, which holds assets worth 17 trillion won, and merging it with Hana Life Insurance, would significantly boost Hana's life insurance unit. Such a move has the potential to raise Hana Life Insurance up from its current rank of No. 19 among 23 life insurance firms, according to industry sources.

Also, through the acquisition of KDB Life Insurance, the financial group could improve its revenue structure, which has been primarily focused on the banking business. As of the first quarter, the group’s banking business accounted for approximately 82 percent of Hana Financial Group's total net profit.

Hana will make its final decision on the deal after conducting due diligence on the life insurance company.

However, the successful closure of the acquisition deal remains uncertain due to the burdensome debt and capital structure of KDB Life Insurance.

According to industry sources, the estimated sale price for KDB Life Insurance is around 200 billion won, but it is also estimated that approximately 1 trillion won in total would be required to stabilize KDB Life Insurance and ensure its smooth operation.

As of the end of the first quarter, KDB Life Insurance’s debt stands at around 16 trillion won. Also, since the insurance firm heavily relies on subordinated bonds and hybrid securities, KDB Life Insurance would need to secure additional funds when its bonds mature.

This is KDB’s fifth attempt to sell its insurance arm, as its four previous attempts at the sale did not bear fruit.

Most recently in 2020, private equity firm JC Partners emerged as the preferred bidder for the acquisition of KDB Life Insurance, leading to the signing of a stock sale agreement the following year.

The deal, however, did not materialize, as the financial authority deemed that JC Partners did not possess the necessary qualifications to acquire the life insurance company.

By Song Seung-hyun (ssh@heraldcorp.com)