Price Tag Too High
The sale of KDB Life Insurance is showing little progress as Korea Development Bank (KDB), which owns the insurer, suggests a price of as high as 800 billion won for it. Although KDB Life Insurance completed subordinated debt refunding to mitigate the burden, the annual interest burden is still high, and this is why even local financial holding companies are hesitating.
According to industry sources, lead managers Credit Suisse Securities and Samil PricewaterhouseCoopers distributed their information memorandum on Oct. 22 to South Korean financial holding companies and private equity funds and Chinese financial companies. It is said that prices and acquisition structures can be freely proposed according to the memorandum and this is to attract as many participants as possible with the sale of the life insurance company having failed three times already.
However, the market response is lukewarm to the sale price determined by KDB, that is up to 800 billion won. KDB chairman Lee Dong-gull recently said that the enterprise value of KDB Life Insurance is 200 billion won to 800 billion won. This is 0.2 times to 0.74 times on a PBR basis, which is much higher than local life insurance companies’ 0.2 times to 0.5 times. Insiders are pointing out that KDB is not facing the actual value of KDB Life Insurance.
The life insurance company reduced the annual interest burden by two billion won by applying 3 percent refunding to some of the subordinated debts. Still, the annual interest burden amounts to 40 billion won or so with 4 percent to 7 percent applied to most of the remaining debts. It is said that a capital increase for a higher risk-based capital ratio is inevitable and trillions of won in additional funds is required for the new accounting standards to be introduced next year.