Sale of Korea Exchange Bank Hits Snag
By Kim Jae-kyoung
Staff Reporter
The sale of Korea Exchange Bank (KEB) has reached a deadlock, with its share prices plunging due to deepening liquidity concerns over the banking sector in the wake of the global credit crisis.
Global credit rating agencies' negative view over the future performance of the lender, owned by Lone Star Funds, is also expected to stand in the way of the U.S. buyout fund's move to unload its controlling stake in KEB.
Lone Star has been fishing for a potential buyer both at home and abroad after its attempt to sell off KEB to HSBC ended in a failure as a result of the global financial meltdown.
Market analysts said that falling stock prices are the biggest obstacle to the sale of the nation's fifth largest lender.
``I think that Lone Star may push for the sale of KEB even now, believing that the value of KEB has not changed despite a plunge in stock prices,'' Prudential Securities analyst Sung Byung-soo told The Korea Times.
``The thought does make sense as market stock prices can move up and down regardless of asset values. However, I think that KEB's share prices fell too far,'' he added.
KEB stock prices have almost halved since the rupture of the sale of KEB to HSBC on Sept. 19. Prices closed at 5,650 won per share Tuesday, down from 11,350 won Sept. 19.
Worsening financial soundness at local banks is making the KEB sale more difficult. Kookmin and Hana, which once showed strong interest in the takeover of KEB, are now struggling to stay afloat due to their weakening capital base.
In addition, with the deepening global credit crunch, the merger and acquisition (M&A) market has suddenly turned into a ``buyer's market," as many ailing businesses are being put up for sale at low prices.
``Given that KEB share prices have fallen sharply and financial firms in advanced countries are being put up for sale, it won't be easy for Lone Star to find a potential buyer at this moment,'' another analyst said.
KEB itself is now reeling from the deepening economic downturn, triggered by the global credit crisis, with its profitability and financial soundness getting worse.
Net income for KEB fell by 22 percent to 150.9 billion won in the third quarter from a year ago. Its net interest margin, a key barometer of profitability, also dropped to 2.81 percent from 3.06 percent during the same period.
With the rise in non-performing loans, the lender set aside a total of 193 billion won in loan-loss reserves between July and September, up 63.8 percent from a quarter ago.
Moody's Investors Service recently cut its financial strength outlook on the lender to ``negative'' from ``stable''.
The rating agency said that the rating action reflects the anticipated deterioration in its creditworthiness due to intensifying stresses from the global credit crisis and weaker domestic economy.
In early October, KEB set up a shareholder transition taskforce, reporting directly to CEO Richard Wacker. Since then, the team has been trying to find a potential buyer but its efforts came to no fruition in the face of the global financial turmoil.
A ranking official at KEB said, ``With market conditions worsening, the taskforce is stepping back and keeping a close watch on market developments.''
``In the U.S., Credit Suisse, a lead manager for the KEB sale, is looking for a new strategic major shareholder for the lender,'' he added.