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M&As

Shares in Woori Financial draw KT, builder and PEFs

Telecom giant KT and Hoban Construction participate in the bidding as strategic buyers

By Oct 08, 2021 (Gmt+09:00)

Shares in Woori Financial draw KT, builder and PEFs

South Korea's telecom giant KT Corp., mid-sized builder Hoban Construction Co. and about 10 private equity firms have submitted letters of intent to buy a stake in Woori Financial Group, worth 845 billion won ($707 million) at current market prices. 

The state-run Korea Deposit Insurance Corporation (KDIC) last month announced a plan to sell up to a 10% stake in Woori in a competitive tender by year's end. Currently, it is the single largest shareholder with a 15.13% stake in Woori.

After the upcoming stake sale, the country's fifth-largest listed financial services firm will be a step closer to full privatization in 23 years.

About 20 companies have made preliminary bids by the Oct. 8 deadline, including eBest Investment & Securities Co., KTB Asset Management Co., Glenwood Private Equity and Eugene Private Equity, according to investment banking sources.
  
KDIC is expected to pick at least three bidders as new shareholders. Under the current law, non-financial services companies are allowed to have up to a 4% stake in a domestic bank or banking group. They may take up to 10% of a Korean bank on the condition that they will not exercise voting rights for the other 6% stake.

KT Corp. and Hoban Construction, regarded as strategic investors, are tipped as strong candidates, given that KDIC's preference of long-term investors for the stake in Woori. Mirae Asset Securities Co., Samsung Securities Co. and JPMorgan are handling the stake sale.

KT has built close business relationships with Woori for its subsidiary K Bank, one of the country's three internet-only banks. In August of this year, the telecom services provider signed a strategic alliance with Woori Financial to cooperate in new digital businesses and marketing efforts.

Hoban, based in South Jeolla Province, has emerged as an aggressive buyer of the domestic M&A market. Its construction business may boost its financing capability by taking a stake in the leading domestic bank.

"Hoban seems to have participated in the bidding to strengthen its network with the financial services sector, rather than seeking capital gains," a banking industry source told Market Insight.

PRIVATIZATION IN 23 YEARS

Woori was created in 2001 through a combination of five troubled Korean financial services companies in the wake of the 1997-98 Asian financial crisis. KDIC had injected 13 trillion won in taxpayer money into the merged entity and recouped about 11 trillion won in public money from the group.

The banking group is expected to report stronger earnings in the current quarter, following the Bank of Korea's interest rate hike in August. Given its banking-oriented business, Woori Financial is highly sensitive to interest rate movements relative to other Korean banks.

Considering another rate hike expected to happen next month, its net interest marign, or the difference between the interest income from lending and the interest payment to its savers, will likely make substantial improvement through the first half of next year. 

Additionally, it has more room to expand its presence by beefing up non-banking operations such as brokerage and insurance, compared with domestic rivals which have already balanced their banking and non-banking operations.

Woori is preparing to make bids for domestic brokerage and insurance companies, after KDIC's stake sale is completed by the end of this year.

Write to Chae-yeon Kim, Nan-sae Bin and Daehun Kim at why29@hankyung.com

Yeonhee Kim edited this article.

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