Mirae Asset Daewoo Co. has arranged a large-scale deal between overseas investors in the global market for the first time in the domestic investment banking industry. The company seems to be on track to becoming a full-fledged global investment bank.
According to industry sources on Oct. 4, Mirae Asset Daewoo helped Kohlberg Kravis Roberts & Co. (KKR), one of the world’s three largest private funds, attract 231 million euros (US$265.9 million or 300.34 billion won) from overseas investors, including Prudential Financial Inc., for Pepper Group, a non-banking lender in Australia. KKR bought and secured a 57 percent stake in Pepper Group, which has 49 trillion won (US$43.38 billion) of assets, in December last year. The company has now secured funds for business reshuffle after the acquisition through Mirae Asset Daewoo.
KKR will spend 170 billion won (US$150.51 million) out of the 300 billion won (US$265.6 million) secured through acceptance financing on repaying the existing debts of Pepper Group. The company will also inject 84 billion won (US$74.37 million) into acquiring Banco Primus S.A., a bank in Portugal, and 28 billion won (US$24.79 million) into a capital increase of Pepper Savings Bank, a subsidiary of Pepper Group in South Korea.
There are three major overseas investors for the latest investment, including small and mid-size investment funds from Hong Kong subsidiary of UK-based Prudential Group, asset management firm established by a former employee of Goldman Sachs Group, and Asia-Pacific investment funds from US-based private fund management firm. In South Korea, the Korea Teachers' Credit Union jointly created and invested in acceptance financing funds with Hana Financial Investment Co. and Leading Investment & Securities Co. supplied the funds. Mirae Asset Daewoo, which arranged the deal, also took part in some of the funds as a principal investment (PI) investor. Investors at home and abroad are expected to see nearly 8 percent of earnings rate based on the won over the next three years. The figure is a higher rate of returns than some 4 percent of an interest rate on acceptance financing in South Korea.
Investors at home and abroad paid attention to Pepper Group because global private fund firm KKR is an actual borrower and they would invest in credit funds that mostly make an investment in stable bonds. In addition, the fact that KKR decided to acquire Pepper Group attracted investors. The Australian financial authorities have recently strengthened regulations on mortgage loans mainly lent by four biggest banks in Australia. Accordingly, Pepper Group, which has the largest share of the non-banking financial market, directly stood to benefit most. Pepper Group’s main business is a non-conforming loan. The group has absorbed demand for loans, which has been taken out mortgage loans from banks but blocked by stronger regulations, and dealt with only prime loans, which has a rate above “subprime” that caused the global financial crisis. It grants loans up to 68 percent of loan-to-value ratio (LTV) so it is relatively higher than domestic banks, which considers 60 percent of LTV the safety line.
For the acceptance financing, Park Hyeon-Joo, chairman of Mirae Asset Global Investments in Hong Kong, the global headquarters, directly got in contact with investors, such as KKR and Prudential, and Mirae Asset Daewoo, the headquarters in South Korea, obtained a position as financial arranger by capitalizing its equity capital. Park has recently stresses that Mirae Asset Group should directly invest its equity capital and build up trust with investors to diversify profits, beyond an arranger that sell in small lots to domestic and global investors after total acceptance. The latest investment is part of its plans. However, some point out that property prices are also going up in Australia and Pepper Group can undergo various influences when the authorities strengthen regulations on the secondary financial market as well.