Capital Increased by 1.16 Tril. Won

- Maintain Hold and TP of W34,500

- Shinhan Financial Group (SFG)’s board of directors has resolved to issue new shares worth W1.16tn

- Target of allocation: Affinity Equity Partners, Baring Private Equity Asia

Increase in capital: W1,158,248,000,000

Number of new shares: 39,130,000 (common shares)

Issue price per share: W29,600 (2% discount to base share price of W30,174)

Expected date of listing for new shares: Oct 20, 2020

- According to SFG, the purpose of capital increase through third-party allotment of shares is: 1) to maintain a CET1 ratio of above 12% for potential M&As and business investment; and 2) to attract/partner with global strategic investors to ensure further growth

- SFG’s mid/long-term capital management policy (if/when the third-party rights offer is finalized and the economic recession due to Covid-19 is resolved) is expected to focus on: 1) the consideration of quarterly dividends; 2) achieving of a 30% DPR and subsequent gradual DPR increase; 3) the promotion of organic/inorganic growth post securing of sufficient capital; and 4) share buybacks and cancellations

- In our view, the rights issue should have little impact on SFG’s share price, as: 1) the method of capital increase is third-party allotment; 2) the discount from the base share price is only 2%; and 3) book value dilution reaches just around 5%. However, it appears premature to expect meaningful change in SFG’s shareholder return policy, as: 1) dividend increase is rare immediately after M&A/capital expansion; and 2) we remain in the midst of the Covid-19-caused economic recession. Considering the company’s emphasis on partnerships with strategic investors, the satisfying of expectations for future cooperation/alliances/contributions looks to remain essential

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