ING Groep NV ING 0.00%’s fortunes are changing in South Korea. The Dutch company has an ever-growing list of potential buyers for its Korean life insurer, a far cry from its initial attempt to sell the business last year.
The financial-services company was forced to scrap the deal in December, because the sole bidder KB Financial Group 105560.SE -0.91%, walked away even after ING had lowered the price to $2.1 billion. Potential buyers expect it to trim the price further, and it is set to receive at least five bids when the formal sale process begins within the next few weeks, people familiar with the matter said.
ING declined to comment.
The clock is ticking for ING. It needs to sell controlling stakes in its Asian insurance units by the end of this year under the revised terms of a 2008 Dutch government-bailout package. Only its Japanese and Korean insurance arms remain on the sale block.
ING Life Insurance Korea is the largest among ING’s Asian insurance arms. It is Korea’s fifth-largest by assets, according to end-December data from Korea’s Financial Supervisory Service. Some potential bidders said its assets are attractive.
A handful of companies were interested in the business last year, people familiar with the matter said, but they didn’t bid because KB Financial Group was deemed to be a strong candidate. Until KB Financial withdrew from the purchase of the ING business, the Dutch company had a 5% stake in the Seoul-based firm. It sold that stake in February, but the companies still have a joint venture, KB Life Insurance.
The companies are negotiating a sale of ING’s 49% in the venture to KB Financial. That would give KB Financial full ownership.
ING had valued its Korean life-insurance assets at €2.5 billion ($3.3 billion) under International Financial Reporting Standards, which spooked many potential bidders last year. Although it agreed to sell the business far below its valuation on the books, KB Financial’s non-executive directors opposed the deal, citing an “unclear outlook for the domestic life-insurance business, the need for tighter risk management,” and a high price.
The reduction has attracted potential bidders. An official at one of the companies that could submit a bid told The Wall Street Journal: “We think the price could go down further,” arguing that uncertainty over who will own the business will make customers more reluctant to buy coverage. ING had no comment.
Seoul-based private-equity firm MBK Partners has hired Barclays PLC BARC.LN +0.53%to advise it on a bid for ING Life Insurance, a person familiar with the matter told The Wall Street Journal Tuesday.
Another domestic private-equity firm, Rutter Associates Korea, as well as Korean insurers Tongyang Life Insurance Co. 082640.SE +4.17% and Hanhwa Life Insurance Co. are also considering bidding, people familiar with the matter have said.
Kyobo Life Insurance Co. is looking to bid as well, the people said Shinhan Financial Group 055550.SE -1.09%, one of the top four banking groups in Korea, isn’t immediately interested, but doesn’t rule out bidding, other people told The Wall Street Journal. KB Financial won’t submit a bid: Almost all of the directors that vetoed the deal last year remain on the board.
For the three insurers, securing ING’s life-insurance arm would help them gain ground against Samsung Life Insurance 032830.SE -1.43%, which has a 25% share of the market.
ING has a tad less than 5% of the market, while Hanwha is second with 13% and Kyobo is third with 12%. If Hanwha buys ING’s operations, that would narrow Samsung’s lead, and if Kyobo wins, it would overtake Hanwha to become Korea’s second-biggest life insurer. Tongyang has a 4% market share.
Steady returns are another attraction. According to the Korea Life Insurance Association 088350.SE -0.56%, life insurers’ total assets in the nine months ended Dec. 31 rose 14.2% from the same period a year earlier. The Korean economy, Asia’s fourth-largest, grew 2% last year.
However, the insurance business isn’t a bed of roses. While Korean insurers have a steady cash flow, slower economic growth and low interest rates pose threats, analysts said, because insurers need to pay the relatively high interest rates pledged to existing policy holders.
“Larger life insurers [tend to] suffer more in times of low growth and low interest rates” because they sold lots of insurance when interest rates were higher, said Kim Yeonhee, a senior partner at the Boston Consulting Group. “Expansion under these circumstances won’t necessarily be a plus,” unless the acquirer has a clear view of how the business would fit with its operations.
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