KB, Carlyle keep close eye on local insurance sector

KB Financial Group Chairman Yoon Jong-kyoo, left, and Carlyle Asia Partners advisory team managing director John Kim / Korea Times file

Partnership to help banking group improve Q3 earnings

By Park Jae-hyuk

The newly formed alliance between KB Financial and Carlyle groups is drawing attention from market observers here, as their interest in the domestic insurance industry is expected to help improve KB's financial sheet this year, according to industry officials, Monday.

KB, which announces its second-quarter results, Tuesday, is set to regain its status as leading bank from its chief local rival Shinhan Financial tainted by scandals involving the alleged mis-selling of private equity funds.

FnGuide, an online financial data tracker, estimated KB will report an 882 billion won ($732 million) net profit for the three-month period ended June 30, while Shinhan's is estimated at 855 billion won.

KB may widen the gap with Shinhan in terms of profits in the following quarter as the Financial Services Commission plans to grant approval for KB's suggested acquisition of Prudential Life Insurance Company of Korea and its subsidiaries.

The financial group won the takeover bid in April, following Chairman Yoon Jong-kyoo's initiative to expand into markets that were previously untouched ― such as the insurance sector. It offered to pay 2.3 trillion won for the entire stake in the U.S. life insurer's local subsidiary, despite the worsening outlook for the industry. Although the KB Insurance Union protested the decision, the company's internal survey of its 1,000 employees showed more than 90 percent of them agreed with the takeover.

Prudential reported 140 billion won last year in net profit here. That means KB's yearly earnings would rise 100 billion won from a year earlier once all necessary procedures are completed.

Behind the optimistic outlook was Carlyle. The KB-Carlyle alliance will allow the two to draw on the respective strengths of their domestic and global networks to collaborate on new investment opportunities both in Korea and overseas.

While KB will work with Carlyle on the structuring and financing of the private equity firm's (PEF) investments in Korea, Carlyle will use part of its $6.55 billion Carlyle Asia Partners V buyout fund to invest 240 billion won in an exchangeable bond utilizing KB's treasury shares.

Out of 240 billion won allocated, KB will spend 210 billion won for the Prudential acquisition in the third quarter and use the remaining 30 billion won for operations, according to a regulatory filing.

Some analysts said Carlyle may join hands with KB's other insurance arms, such as KB Insurance and KB Life Insurance, given that the PEF is reportedly in talks with Korean insurers about entering the reinsurance market here, taking advantage of the financial regulator's recent moves to ease regulations on the domestic industry.

After acquiring a 19.9 percent stake in DSA Reinsurance Company from AIG in 2018, Carlyle has expanded its presence in the insurance industry worldwide. It was also considering expanding in reinsurance in Korea by investing in JC Partners, a local PEF that was selected as the preferred bidder for the KDB Life takeover.

“The partnership with Carlyle is a positive factor for KB, because it will help the financial group raise money for the Prudential acquisition at zero interest and enhance its investment banking capability,” Samsung Securities analyst Kim Jae-woo said in a report.

Carlyle Asia Partners advisory team managing director John Kim also said recently his company aims to expand its presence in Korea through its partnership with KB.

“KB's leading position in Korea was a key factor in signing the MOU, as was the group's stable growth, strength of management and deep credibility,” he said. “The group has also demonstrated excellent risk management capabilities in the face of the economic downturn resulting from COVID-19.”

KB said it is considering collaboration with Carlyle in various sectors, but declined to comment on details about the progress of their partnership over the past month. The Korea Times asked Carlyle regarding this issue through its PR agency here, but it has yet to receive an answer.