Kbank’s postponed IPO undermines BC Card’s financial soundness

BC Card's headquarters in Seoul / Courtesy of BC Card

The delayed initial public offering (IPO) of Kbank is emerging as a stumbling block for BC Card, which is restructuring its revenue model following the departure of key member companies such as Woori Card, industry officials said Monday.

BC Card, a subsidiary of KT, is the largest shareholder of the internet-only bank, holding approximately 34 percent of its shares.

The card company, which is urgently seeking investment to diversify its business portfolio, reported a sharp decline in net profit for the first quarter of this year, due mainly to the fallout from the postponed Kbank IPO.

With the IPO still delayed, BC Card is under growing pressure, as it may not be able to recover its initial investment and may even be forced to inject additional capital to acquire Kbank shares held by financial investors.

According to the Financial Supervisory Service’s electronic disclosure system, the card firm reported a net profit of 34.1 billion won ($24.4 million) for the first quarter of this year, down 29.9 percent from 48.7 billion won a year earlier.

The decline was largely attributed to a drop in non-operating income, which fell 13.27 percent year-on-year to 9.8 billion won, due to valuation losses on derivatives linked to Kbank.

"Kbank’s IPO postponement led to a reduction in the fair value of derivatives linked to the bank. This reduction contributed to a decline in non-operating income," a BC Card official said.

The decline in the net profit also reflects losses accounted for under the equity method, stemming from Kbank’s reduced profits. With the bank’s first-quarter net profit dropping 68.2 percent year-on-year, the decrease had an immediate effect on the card firm’s financial results as its major shareholder.

BC Card’s operating profit, meanwhile, increased by 3.2 percent compared to the same period last year, reaching 35.7 billion won, supported by strong growth in its business-to-consumer card operations.

Kbank's headquarters in Seoul / Courtesy of Kbank

In 2020, BC Card acquired a 10 percent stake in Kbank on behalf of its parent company KT, which faced issues with a major shareholder eligibility review. Since then, the card firm has increased its stake to approximately 34 percent through participation in capital increases.

In July 2021, when a capital increase worth 1.25 trillion won was carried out for the internet bank, BC Card invested about 425 billion won, while approximately 725 billion won was contributed by financial investors, including MBK Partners.

Kbank officially announced its IPO plans in 2022 and pursued listings consecutively in 2023 and 2024. However, both attempts failed due to the sluggish stock market and weak demand in the investor book-building process amid challenging domestic and global conditions.

The internet bank is impacting not only the card company’s financial performance but also its overall operations.

BC Card should purchase 100 billion won worth of new capital securities from Kbank next month, aimed at supporting the bank’s investment in AI and cloud technologies. This will tie up about 5 percent of BC Card’s capital in cash.

Another concern is the potential need for additional financial support.

When BC Card received investments from financial investors, it granted them drag-along rights, meaning that if Kbank fails to go public by July 2026, financial investors can force the sale of their entire stake, including BC Card’s shares, to a third party.

To counter this, the card firm secured a call option that allows it to buy the financial investors' shares first if such a sale is initiated.

If the IPO does not happen by July 2026, financial investors may exercise their drag-along rights, and BC Card could face the need to inject a large amount of capital to prevent the sale.

Considering the promised internal rate of return of 8 percent to the financial investors, BC Card will need to spend about 1 trillion won to buy the shares, equivalent to roughly 62.5 percent of its own capital.