A 92.73% Stake Put up for Sale
South Korea’s state-run Korea Development Bank (KDB) has officially kicked off a sale process for KDB Life Insurance, formerly Kumho Life. Private equity funds at home and abroad or financial groups which do not own life insurance companies, such as KB Financial Group and Woori Financial Group, are mentioned as a potential buyer of the life insurance firm. However, it is uncertain whether the deal will go ahead as planned as there are still variables, including domestic insurance market saturation and additional capital expansion issues.
KDB Bank announced on Sept. 30 that it plans to accept letters of intent (LOI) from potential buyers and make a shortlist by early November, choose the most preferred bidder and sign a memorandum of understanding (MOU) with it by the end of this year and complete the sale process by early next year.
The bank has selected Credit Suisse (CS) and Samil PricewaterhouseCoopers (PwC) as the lead manager of the sale process, PwC for a financial due diligence, Seattle-based Milliman for an actuarial due diligence and Seoul-based Lee & Ko for a legal due diligence. Starting with the kick-off meeting on Aug. 14, they have been carrying out a buyer due diligence and holding pre-meetings with potential buyers.
The bank will sell off some 88 million common shares, or 92.73 percent stake, of KDB Life Insurance owned by a private equity fund KDB-Consus Value PEF and a special purpose company.
KB Financial Group or Woori Financial Group which do not have life insurance units or relatively vulnerable or private equity funds at home and abroad are regarded as a potential buyer. The M&A market will grow as the number of deals to sell insurance companies is expected to increase from the second half of next year regardless of actual acquisition. Accordingly, private equity funds which needs to study the insurance industry are also highly likely to participate in the preliminary bid.
KDB Life Insurance saw its risk-based capital (RBC) ratio fall to 108.5 percent in 2017 but raised the figure to 232.7 percent as of the end of June. The company posted 33.50 billion won (US$27.98 million) in net profit in the first half of this year. Therefore, it is an attractive company to acquire in a physical size. However, there is growing uncertainty about the burden of additional capital expansion with the introduction of the new International Financial Reporting Standards (IFRS) 17 and the Korean Insurance Capital Standard (K-ICS), and the long-term outlook for the domestic insurance market is not so rosy due to the market saturation.
The fact that the sale process of Tongyang and ABL, the insurance duo owned by Chinese Anbang Insurance Group, can be accelerated in the first half also can be a variable of the sale process of KDB Life Insurance. An official from an investment bank (IB) said, “Financial groups wants to purchase a life insurance company according to the size of the groups. So, KDB Life Insurance is unattractive as it is smaller and less profitable than Tongyang and ABL Life Insurance or Kyobo Life Insurance.”
Meanwhile, KDB Bank took over KDB Life Insurance, formerly Kumho Life, from Kumho Group to minimize the damages of policyholders caused by restructuring and insolvency of the life insurance firm in 2010. The policy bank had tried to sell its stake in KDB Life Insurance three times since then but the earlier attempts all failed due to price difference.