Prudential Life Insurance Korea headquarters in Seoul (Prudential Life)
An intense bidding war for the takeover of Prudential Life Insurance of Korea, valued at some 2 trillion won ($1.6 billion), kicked off early Thursday as major banking groups and private equity houses vied to get their hands on the insurer.
The bid for a 100 percent stake in the insurer came as the risks stemming from the novel coronavirus compounded those from the Bank of Korea’s latest rate cut. Those risks have slowed the momentum for the bid, which could be the largest acquisition deal in the nation’s financial industry for 2020.
The current record-low benchmark interest rate of 0.75 percent is weighing on the local banking groups’ profitability, which in turn has added volatility to their capital. This forces them to take conservative stances when making large-scale mergers and acquisition investments such as the Prudential Life bid.
Local lenders were already suffering from low net interest margins, which are a key profitability indicator for banks. The NIM measures the gap between income from loans and the interest paid out on deposits, and tends to decline as rates drop.
For Thursday’s bidding, Goldman Sachs acted as lead manager while KB Financial Group competed against large-scale private equity houses MBK Partners, Hahn & Co. and IMM Private Equity.
Of the three private equities, IMM partnered with Woori Financial Group at the last minute, with the holding group offering acquisition financing. Woori was rumored to be planning to participate directly in the bidding, but instead it seems to have decided to take a step back and take part as a financing partner. IMM currently holds a 5.96 percent stake in Woori.
MBK Partners and Hahn & Co. chose local brokerages Korea Investment & Securities and NH Investment & Securities as partners in the same manner.
As of Thursday at noon, industry watchers picked KB as a strong contender, given its apparent hopes of gaining an insurance unit in a bid to diversify its portfolio.
KB has long hoped for a life insurance unit in addition to KB Life Insurance, especially after its rival Shinhan’s 2.3 trillion won takeover of what was known as ING Life Insurance in February 2019. ING Life was later rebranded as Orange Life.
Its industry rival Woori currently does not own an insurance unit, and IMM’s acquisition of an insurer may hand the holding group a later opportunity to get its hands on Prudential Life through a stake purchase.
Last year it acquired real estate trust firm Kukje Trust, asset management houses Tongyang Asset Management and ABL Asset Management, and credit card firm Lotte Card, which it bought jointly with private equity house MBK Partners.
But local insurers also face drawbacks from the BOK’s latest rate cut, which makes the deal seem less lucrative than before.
The insurers see their legacy high-yield guarantee policies reaching maturity and the new 0.75 percent rate has capped the return on their investments.
The Prudential Financial’s South Korean unit, founded in 1989, is now fully owned by Prudential International Insurance Holdings.
By Jung Min-kyung (firstname.lastname@example.org