Kyobo Life weighs bid for Woori

Will the long-overdue sale of Woori Bank finally go through?

Despite Kyobo Life Insurance’s decision late Tuesday to participate in the bid to acquire a 30 percent stake in the bank, the market seems to be split over whether the sale will be finalized, especially since the financial burden from the acquisition is expected to be heavy.

Ahead of preliminary bidding for the stake in Woori Bank set for Nov. 28, Kyobo Life on Wednesday said its board of directors decided to take part in the bid during a meeting on Tuesday. The primary bidder is expected to be selected in the first quarter of next year. However, the life insurer did not take an aggressive stance. Its top management will decide details later, including whether it will purchase the entire 30 percent stake or just a portion, as well as the amount of its offer.

The life insurer, which does not own a bank, has been considered the most likely to acquire the bank. It even formed a task force to prepare for the acquisition after the government announced on Sept. 30 that the 30 percent stake was up for sale.

If Kyobo Life wins the bid, it would be the first local insurance company to acquire a bank.

It would also give the company an opportunity to advance from its position as the No. 2 insurer using the sales network of Woori Bank branches. Kyobo Life has struggled over the years to challenge No. 1 insurer Samsung Life and has faced tough competition from its other rival, Hanwha Life.

Daishin Securities on Wednesday released a report showing the market’s confidence that the sale of Woori’s stake would be successful.

“Woori Bank’s stock value will likely show severe volatility because the 30 percent stake preliminary bid and the bid for the remaining [government] shares are coming up,” said Choi Jung-wook, a Daishin Securities analyst. “But one could approach it with positivity that the 30 percent stake will be sold, which would decide the mid-to-long term value of the bank’s stocks.”

This is the fourth time since the Lee Myung-bak administration that the government has tried to recoup its 56.97 percent stake investment in the bank.

Its first attempt was in 2010. Although it attracted many interested parties and more than 10 bidders, none followed through. A second attempt was made the following year that only attracted private equity funds. In another attempt made in 2012, the biggest bidder, KB Financial Group, pulled out due to strong political opposition. Kyobo Life, which also was interested at the time, withdrew its bid in the preliminary round. This prompted Financial Services Commission (FSC) Chairman Shin Je-yoon to say he would resign if he failed to oversee the bank’s privatization.

The FSC decided to lessen the financial burden of the Woori sale by separately selling the affiliates of the financial group.

The regional banks and brokerage firm were to be sold as a 30 percent and a 27 percent stake instead of one 56 percent stake. The company that acquires the 30 percent will have the management rights to the banks, while the 27 percent stake will be broken up into smaller shares.

One of the biggest challenges for Kyobo will likely be coming up with the money to acquire the bank.

“Kyobo has taken a less aggressive stance on the bid and it might even reconsider its participation,” said Korea Investment & Securities analyst Lee Chul-ho. “Kyobo would probably need roughly 3 trillion won to acquire Woori Bank’s 30 percent stake, including a management premium payment. Kyobo can manage to come up with 1.3 trillion won on its own but it will need to bring in other financial investors such as France’s AXA for the remaining payment.”

Under current insurance law, Kyobo can only bid 3 percent of its total assets.

The financial burden isn’t the only obstacle the insurer is facing. One of the key elements that seems to be holding Kyobo back and forcing the company to reconsider its bid is the fading perception that the bank will be a lucrative investment.

Woori Bank was once dominant in the industry, competing for the top spot with KB Financial Group. But recently its performance has worsened. Now, the financial benefits that should come with the acquisition may not outweigh the huge investment the insurer would have to make.

And Kyobo Life also would have to deal with opposition from Woori’s labor union.

Last month, the union released a statement saying that it was opposed to Kyobo taking over the bank. It claimed that the participation of foreign investors will result in profiteering, then will leave the bank out to dry instead of making investments in its future.

BY LEE HO-JEONG [ojlee82@joongang.co.kr]