KKR & Co., a private equity giant, has reached a preliminary agreement to buy a minority stake in South Korea’s No.2 banking group Shinhan Financial Group and to launch global M&A funds jointly to raise up to 5 trillion won ($4.4 billion), according to financial regulatory and industry sources on Oct. 14.
Joseph Bae, co-president of KKR and Shinhan Financial chairman Yong-byoung Cho recently signed a memorandum of understanding on the deal in Seoul.
Under the agreement, Shinhan will sell up to 9.9% stake in Orange Life Insurance Ltd., formerly ING Life Korea, to KKR for around 400 billion won ($353 million). Last month, Shinhan acquired the majority stake of Orange Life from South Korea’s largest private equity firm MBK Partners for 2.3 trillion won in cash.
After Shinhan buys back the remaining stake in listed Orange Life from the Seoul stock market as planned, it will swap the KKR-owned stake in the life insurance arm with shares in Shinhan Financial Group.
Through the share swap and an additional stake purchase in Shinhan Financial, KKR is likely to secure more than 3.55% of the financial holding company and a board seat, according to the sources.
KKR is expected to spend more money to buy the additional shares in the South Korean banking giant.
It will likely take two to three years to execute the transaction, considering delisting Orange Life.
“(Shinhan) took into account replacing BNP Paribas’ position with KKR,” said an investment banking source. “If it happens, KKR will naturally take over the board seat held by BNP Paribas.”
BNP Paribas, a French banking group, has been reducing its ownership in Shinhan via block deals to currently 3.5% from 9.38%.
A group of Korean Japanese, founders of Shinhan Financial, own a combined 10% in the holding company which had assets of 453 trillion won as of end-August 2018.
The National Pension Service and BlackRock Inc., a US asset manager, hold 9.55% and 6.13% as financial investors, respectively.
KKR-SHINHAN PRIVATE EQUITY FUNDS
Under a strategic partnership, Shinhan Financial will launch five private equity funds jointly with KKR one after another from early next year.
Initially, they will raise a 1-trillion-won fund and launch additional four funds to gather a total of 5 trillion won over the next five years, depending on the performace of the first fund.
The financial group’s units, including Shinhan Bank, Shinhan Investment Corp. and Orange Life, will participate in the funds as limited partners, with both KKR and one of Shinhan Financial’s units managing them as general partners.
The new funds will either participate in KKR’s funds operating in 16 countries as limited partners, or invest in M&A transactions.
“It is a strategic move to entrust Shinhan Financial’s alternative assets to KKR and at the same time to participate in KKR’s global M&A deals as a co-investor,” said a high-ranking financial industry source.
For KKR, the investment in Shinhan Financial shares will help diversify its LP sources.
In August, Carlyle Group, Washington DC-based private equity firm, agreed to buy a stake in an American International Group Inc.-owned insurance company as part of effort to get more business from the insurance industry.
By Hugh YH Jeong
<Edited by Yeonhee Kim>
(Modified on Oct. 16 to clarify that KKR is expected to spend around 400 billion won to buy up to 9.9% stake in Orange Life.)