By Nam Hyun-woo
The Korea Development Bank (KDB) will begin the selling process of its subsidiary KDB Capital as early as next month, the bank said Tuesday.
KDB Capital is KDB’s investment and corporate loan subsidiary, of which the state-run bank is seeking to sell its 99.92 percent stake.
According to the bank, it will wrap up preliminary due diligence on shortlisted bidders and launch the bidding process by the end of May.
On March 29, KDB shortlisted three entities ― domestic financial investor SK Securities Private Equity (PE), global private equity fund Carlyle and the accommodation company City of the Sun, led by the son of now-defunct Myungsung Group Chairman Kim Chul-ho.
KDB Capital’s book price reached 597.3 billion won at the end of last year. Market watchers expect KDB won’t let go of its 99.92 percent stake for less than 600 billion won and the price may go up to 700 billion won.
“KDB Capital rakes in 100 billion won in profit every year,” an official at KDB said. “There is no reason for us to bear a loss by selling the company.”
According to the Financial Supervisory Service, KDB Capital’s operating profit was 130.6 billion won last year and its net profit reached 99.6 billion won.
Despite its sound profitability, the company was not attractive to investors.
KDB pushed for selling the subsidiary last year, but the effort failed in the preliminary stage, as only one entity ― SK Securities PE ― placed a preliminary bid.
Market watchers attribute the company's low popualarity to its growing loans classified as substandard or below (SBLs). In 2014, its SBLs stood at 4.86 billion won, but increased to 79.8 billion won nine months later.
Another reason is getting out of the so-called “KDB umbrella.” On March 29, the Korea Investors Service (KIS), a local credit rating agency, said in a report that it would lower KDB Capital’s credit rating if it is sold to a private equity fund.
“KIS gives an AA- rating to KDB Capital based on its market status, financial soundness and the possibility of KDB, the largest shareholder of KDB Capital, financing the subsidiary in case of an emergency,” the report read. “However, benefits from those factors may decrease if the major shareholder is changed.”
Despite the woes, the state-run bank is striving to sell KDB Capital in line with the government’s policy of redesigning the governance of state-run financial firms
“Since the selling of KDB Capital has already failed once, KDB gave six weeks for preliminary due diligence so that bidders can be more prudent,” the official said.
The relevant law stipulates that bidding by a sole competitor is invalid and KDB can choose a buyer if the bidding fails twice. Last year’s effort was not counted because it could not make it to the official bidding phase.
“After reviewing whether those preliminary bidders’ prices are unfounded or not, the bidding will be held at the end of May.”