The Carlyle Group has tentatively agreed to buy $200 million worth of bonds exchangeable into shares in KB Financial Group and the US private equity firm plans to increase its holding in the South Korean banking giant for an additional 260 billion won ($215 million).
Its most recent Asia buyout fund, Carlyle’s Asia Partners V, will invest 240 billion won ($200 million) in KB Financial through zero coupon exchangeable bond as they agreed to form a strategic alliance to enhance global and domestic investment activities, according to their joint statement on June 18.
Additionally, Carlyle plans to inject 260 billion won into KB Financial later on to boost its holding, investment banking sources told the Korean Investors. When asked about details about the planned additional investment, a KB Financial source said nothing has been decided yet.
With the initial investment of $200 million, Carlyle is poised to become the sixth-biggest shareholder in the South Korean banking group with a 1.2% stake.
The National Pension Service is the biggest shareholder of KB Financial with a nearly 10% stake, followed by JPMorgan Chase with a 6.4% stake. Minority shareholders hold a combined 74.5% stake.
The investment will mark Carlyle’s first equity deal for a South Korean financial services firm in two decades since it invested $450 million in then KorAm Bank in 2000. Carlyle sold the stake to Citigroup for a profit in 2004.
“The stake is not big enough to allow it to directly participate in KB’s management, but Carlyle will likely exert significant influence in KB’s investment decisions as a friendly shareholder,” said one of the sources.
Under a memorandum of understanding signed on June 18, Carlyle will be allowed to exchange the bonds into KB shares for 48,000 won apiece between August 29 this year and June 16, 2025, according to KB Financial’s regulatory filing.
The agreed price represents a 33% premium to Friday’s close of 36,000 won, reflecting Carlyle’s expectations for a rebound in KB shares.
Since hitting a year-to-date high of 48,700 won in late January, KB shares have shed almost 30% due to weak results, sharply underperforming a 3% drop in the broader KOSPI index.
KB Financial had purchased the bulk of treasury shares at a price of above 40,000 won. The $200 million worth of exchangeable bonds are equivalent to 5 million treasury shares, or about one fifth of KB’s treasury stock.
Carlyle has agreed not to sell them for the next three and a half years.
The Washington-based private equity firm expects the partnership with KB to help build its presence in South Korea where it has been left behind smaller Asia-based rivals in deal sourcing.
By forming strategic partnership, KB Financial will work with Carlyle on the structuring and financing of Carlyle’s investments in Korea, KB said.
It will use 210 billion won of the 240 billion won investment from Carlyle to fund the $1.9 billion acquisition of the South Korean arm of Prudential Financial Inc.
“This strategic alliance will enable KB Financial to accelerate its global growth through close cooperation with Carlyle in discovering new investment opportunities, both in Korea and abroad,” Yoon Jong-gyu, chairman of KB Financial, was quoted as saying in the statement.
The banking group expects to expand global networks and non-banking business beyond the home country through an alliance with Carlyle.
“Equally, we believe that the strength of our domestic network will help Carlyle as it seeks to invest more into the Korean market,” he added.
The announcement comes as Yoon is expected to seek a second term later this year.
Separately, KB decided on June 18 to raise 300 billion won in a new perpetual bond sale to finance the Prudential deal and bolster its capital position.
Its shares closed 2.13% higher at 36,000 won on June 19, versus 0.37% rise in the KOSPI.
By Chaeyeon Kim, Soram Jung, Sang-eun Lucia Lee
<Edited by Yeonhee Kim>