A backlog of South Korean insurers up for sale has begun clearing in quick succession, injecting fresh energy into a long-frozen market. Financial firms are moving aggressively to secure insurance licenses as they seek to broaden their business, warming the market as a whole.
Attention now turns to the remaining target, Lotte Non-Life Insurance (000400.KS). With talks between the seller and its leading bidders having soured considerably, interest is growing in whether an open sale process — expected to launch soon — can give the seller a turning point.
OK Financial Named Preferred Bidder for Yebyeol Insurance, Unclogging Stalled Insurer M&A
The first target to break the logjam in the insurer M&A market was Yebyeol Non-Life Insurance, according to investment banking sources on the 15th. The Korea Deposit Insurance Corp., its major shareholder, last month named OK Financial Group as the preferred bidder to acquire Yebyeol. Yebyeol had struggled through six failed sale attempts, and its selection of OK Financial as a candidate for new ownership began to thaw a market that had been tightly blocked.
The Korea Development Bank added momentum on the 13th by naming Korea Investment Holdings as the preferred bidder for KDB Life Insurance, which is looking for a seventh new owner, raising expectations that the reshaping of the insurance market will accelerate. As targets that had long gone without buyers entered the deal-closing stage one after another, industry watchers agree the moment has reaffirmed the financial sector's appetite for insurance licenses.
Korea Investment, After Scanning Every Target, Places Aggressive Bet on KDB Life and Shifts the Board
Korea Investment Holdings has been a leading player in the recent insurer M&A market. Having already acquired brokerage, asset management, private equity fund (PEF), venture investment and real estate trust businesses, along with a stake in a virtual-asset company, the holding company aims to leap into a full-fledged financial group by adding an insurance affiliate. To that end, it had placed nearly every insurer on the market — Lotte Non-Life, KDB Life, BNP Paribas Cardif Life and Yebyeol Non-Life — on its candidate list and reviewed investments from multiple angles.
After long deliberation, Korea Investment Holdings made a bold bet on KDB Life. While each bidder proposed capital injections in the hundreds of billions of won, Korea Investment appears to have offered more aggressive terms than rivals such as Hanwha Life Insurance and Heungkuk Life Insurance. As a result, investment banking sources see the likelihood of completing this deal as considerably higher than in the past.
The issue is the ripple effect of Korea Investment's choice of KDB Life on other negotiating tables. Korea Investment had advanced exclusive talks to acquire BNP Paribas Cardif Life to the point where only a share purchase agreement (SPA) remained to be signed, but its selection as KDB Life's preferred bidder has raised the possibility that it will withdraw from that deal.
Above all, the chances that Korea Investment will drop out of the Lotte Non-Life race have risen. With enormous funds required for the KDB Life acquisition, adding Lotte Non-Life — which carries an even heavier capital burden — would leave too many financial variables to weigh.
Trailing Shinhan, JKL Turns to Open Sale to Widen the Pool of Bidders
Amid these shifts, the calculations of Lotte Non-Life and its largest shareholder, private equity firm JKL Partners, have grown more complicated, as the pool of bidders risks shrinking further.
The Lotte Non-Life race was formally a contest between Korea Investment Holdings and Shinhan Financial Group, but investment banking sources had regarded Shinhan as the front-runner, given that regulators — who hold approval powers such as the major-shareholder eligibility review — would need to be brought along. With a negotiating structure already tilted in Shinhan's favor, JKL appears to have lost most of its leverage.
The decisive cause of the stalled talks was a gap over price. JKL had sought a sale price of at least the low 1 trillion won range to preserve the principal of the limited partners (LPs) in its acquisition fund. Shinhan, by contrast, pointed to Lotte Non-Life's market capitalization of only 600 billion to 700 billion won, its CET1 ratio and the burden of future capital increases in seeking to cut the price far lower. Unable to narrow the gap, the two sides are seen as unlikely to resume talks for some time.
With Korea Investment now pivoting to KDB Life and its departure becoming clear, the seller faces the task of quickly finding a new buyer. JKL and its sale manager, Samjong KPMG, are expected to move soon to switch to an open bidding process, diversifying the field of bidders and putting the deal back before the market for reassessment.
Investment banking experts advise that to spur the interest of Shinhan — still a leading candidate — the seller must first expand its pool of prospective buyers. From there, they say, a more concrete strategy is needed to stoke Shinhan's need to bulk up by invoking the widening gap in non-bank net profit and assets between KB Financial Group and Shinhan. Ultimately, breaking free of a structure that relied solely on Shinhan and drawing in rival holding companies or global capital as new candidates is expected to be the key factor deciding the deal's success or failure.
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