By Kim Jae-won
Hana Financial Group has brought in China Merchant Bank (CMB) as a key partner in the acquisition of Korea Exchange Bank (KEB). The speculation is that CMB will act as a financial investor to help Hana fund its purchase of a controlling stake in KEB from Dallas-based Lone Star Funds, although the country’s fourth largest bank denies it.
Their agreement includes a wide range of collaboration from retail banking and foreign exchange services to investment banking and credit cards, Hana said.
“The backbone of the agreement is to develop a partnership between the two banks, including buying each other’s shares,” said Hana Financial in a statement.
Established in 1987, CMB was listed as China’s sixth-largest bank with total assets of $342.5 billion as of June last year and operates 776 outlets.
Analysts advised Hana Financial to be careful in cutting a deal with CMB.
“Hana Financial needs Chinese investment but it should be careful,” said Jeon Hyo-chan, a research fellow from the Samsung Economic Research Institute (SERI). “Korea has bad experiences with Chinese investment, such as with the Shanghai Automotive Industrial Corp. (SAIC) though it is different from banking.”
In late 2004, the Chinese automobile manufacturer SAIC took a 51 percent stake in Ssangyong Motor. In January 2009, after recording $75.42 million in losses, Ssangyong was placed under receivership due to the global economic crisis and shrinking demand. SAIC fell under the suspicion that it just siphoned off key Ssangyong technologies.
Hana Financial said the Chinese bank won’t participate in the financing of its 4.7 trillion won ($4.2 billion) purchase of smaller KEB.
Hana Financial signed an agreement with U.S.-based buyout firm Lone Star Funds in November to take over a 51.02 percent stake in KEB and has since looked for investors willing to provide funds for the deal.
“CMB cannot participate in the takeover funding since regulatory approval in China takes about six months,” a Hana Financial spokesman said. But currently, regulatory approval in Korea is being delayed, giving time for CMA to come on board.
Some analysts say Hana may try to reserve funds to prepare for a delay in the approval from the financial regulator.
The Financial Supervisory Service is currently examining the deal, and the audit is widely expected to be completed in April or May, or could be delayed further.
Of the total acquisition price of 4.7 trillion won, the group is seeking to raise 1.2 trillion won from outside investors by February while another 1.2 trillion won is expected to be raised through bond sales.
The remainder will be financed through Hana Financial’s internal funds, including dividends from its banking unit Hana Bank.
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