KKR’s strategic relationship with Shinhan Financial fizzles

  • 2020-09-15

Back in 2018, KKR & Co. tentatively agreed to buy a minority stake in South Korea’s Shinhan Financial Group to build a strategic relationship and to jointly raise up to $5 billion in M&A funds.

Since then, the US private equity firm has not yet taken a stake in the banking group and their pledge to launch the global funds has not yet been fulfilled.

In January, Shinhan announced a plan to raise a combined $200 million from its subsidiaries in two KKR funds of funds (FoFs). It has garnered $150 million for one of the two FoFs so far, with the other $50 million FoF not raised yet, according to financial industry sources.

Further, KKR recently missed out on new shares to be issued by the country’s No. 2 financial holding firm, which decided on Sept. 4 to sell $1 billion worth of new shares to Affinity Equity Partners and Baring Private Equity Asia.

“Their partnership seems to have fizzled out,” said a financial industry source, referring to the fact that KKR was excluded from the recent share deal.

 

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Market speculation was that KKR was dropped out of the auction to buy the Shinhan shares. But some industry sources said the US PEF was not a serious bidder from the beginning, or must not have submitted a bid for the auction. The reason for their weakened relationship was not known.

The two Hong Kong-based PEFs – Affinity and Baring – will purchase new Shinhan shares by Sept. 28 at 29,600 won apiece, similar to the market price. With a two-year mandatory holding period, they will end up with 4% and 3.6% stakes, respectively, becoming the first foreign PEFs to buy Shinhan shares as a strategic investor.

FRIENDLY FORCES

The industry sources said that Shinhan’s rights offerings in the third placement were meaningful in that Chairman Cho Yong-Byoung could add Affinity and Baring to its 13-member board of directors as friendly forces.

Since being installed as chairman in 2017, Cho appears to have been increasing the number of directors on his side, standing up to shareholders composed of Korean residents in Japan who are estimated to hold an 18% stake in Shinhan.

“Both Affinity and Baring are expected to require a board seat to participate in its day-to-day business. Shinhan will likely offer them,” said one of the sources.

Seoul-based IMM Private Equity, which invested 750 billion won in preferred shares in Shinhan last year, has a seat on the 13-member board.

Looking ahead, market focus will be whether Shinhan will strengthen its relationships with existing PE shareholders such as Affinity and Baring, or find a new strategic partner to bolster global alternative investments.

“It was a surprise for Shinhan Financial to select Affinity and Baring (to sell new shares),” said another financial industry source. “It seems aimed at tightening Chairman Cho’s control over the board of directors, rather than building partnerships for global investment.”

By Sang-eun Lucia Lee

selee@hankyung.com

<Edited by Yeonhee Kim>