South Korea’s Hana agrees $4.1 billion KEB deal

By Narayanan Somasundaram and Ju-min Park

SYDNEY/SEOUL (BestGrowthStock) – Hana Financial (086790.KS: ) agreed to buy 51 percent of Korea Exchange Bank (004940.KS: ) for $4.1 billion in South Korea’s biggest banking deal, trumping rival suitor Australia and New Zealand Banking Group (ANZ.AX: ).

The deal, which comes a day before South Korea ends the first round of a $6 billion-plus stake auction for Woori Finance Holdings (053000.KS: ), will make Hana the nation’s third-largest lender by assets, giving it more muscle to compete in the saturated Korean banking sector.

ANZ, which was caught off-guard by Hana’s bid last week, said on Thursday it would not make a rival bid as its three-month evaluation of KEB’s books did not support a competing offer.

Still, ANZ’s defeat is a setback for the company, which aims to generate 20 percent of its profit from Asia by 2012, up from the current 14 percent.

“If a deal had been reached it would have been a plus (for ANZ). Now it is business as usual. ANZ’s discipline here must be commended,” Paul Xiradis, chief executive at fund manager Ausbil Dexia, said. Ausbil Dexia owns ANZ shares.

Shares in Hana closed down 1.8 percent, ending an eight-day winning streak, while ANZ ended up 0.9 percent, the only gainer among top Australian banks.

Hana, Korea’s fourth-largest bank, said it will pay 14,250 won per KEB share, or a 15.5 percent premium to Wednesday’s closing price. The takeover will give it total assets of 316 trillion won, overtaking Shinhan Financial Group (055550.KS: ), and over 1,000 branches in Korea, second only to top lender Kookmin Bank.

KEB emerged in the auction at the last minute, outbidding ANZ, which had reviewed KEB books since August. ANZ had been considering paying a maximum of $4.5 billion for 57 percent stake held by Lone Star and Korean bank KEXIM, close to both book and market value, according to sources.

Hana said it may also buy KEXIM’s 6 percent stake in KEB after discussing with the second-biggest shareholder of KEB.

UNCERTAINTY ON FINANCING

Hana, however, did not give detailed financing plans for its second KEB takeover attempt. In 2006, Hana lost out to Kookmin in the failed auction to sell the country’s biggest foreign-exchange bank.

“We are reviewing various options and a rough financing plan will be drawn up by February, but there won’t be any asset sales,” Hana chief executive Kim Jong-yeol told a news conference. “We are talking to potential investors and the form of their participation could be either as a pure financial investor or a long-term strategic investor willing to buy new shares of Hana.”

Sources told Reuters on Wednesday that Hana was in preliminary talks with private equity firms including Carlyle Group (CYL.UL: ) and Kohlberg Kravis Roberts & Co to fund the acquisition.

Another source with knowledge of the matter told Reuters that Goldman Sachs Group Inc (GS.N: ), the top shareholder in Hana with an 8.66 percent stake, would provide financial support for the deal.

Credit ratings agency Moody’s Investors Service placed all of Hana Bank’s ratings on review for possible downgrade amid market concerns that the core unit of the parent Hana group may be forced to raise dividend sharply to fund the acquisition.

FINAL EXIT

The deal would mark Lone Star’s final exit from Korea after at least two failed sales attempts over the past five years.

Dallas-based Lone Star had already recovered almost all of its initial $1.2 billion investment made in 2003 through KEB’s high dividend payouts, but its exit strategy has been hampered by a tax probe and a raid by government prosecutors on its Seoul offices.

The firm was later cleared of any wrongdoing.

Bankers and analysts have said ANZ will now look for other Asian investment opportunities, including Indonesia’s Bank Panin (PNBN.JK: ) and Thai Military Bank (TMB.BK: ).

“Michael Smith knows Asia well,” Xiradis of Ausbil Dexia said, referring to ANZ’s chief executive, the architect of the bank’s Asian growth strategy.

ANZ also said it will remain focused on Asia.

“ANZ will continue to focus on organic growth in Asia and to evaluate strategic opportunities as part of its aspiration to build a super regional bank,” it said in a statement. (Additional reporting by Miyoung Kim and Hyunjoo Jin in SEOUL; Editing by Balazs Koranyi and Lincoln Feast)

South Korea’s Hana agrees $4.1 billion KEB deal