Mirae deal targets DaewooMirae Asset Securities is aiming to raise 1.2 trillion won ($1 billion) from a rights issue, a move widely seen as a bid to raise funds for a buyout of Daewoo Securities.
If Mirae Asset succeeds in buying Daewoo, it will become the biggest brokerage in the country, with an asset size of over 7 trillion won.
The company said in its regulatory filing on Thursday the capital increase was aimed at “delivering funds for new businesses, alternative investments and principal investment. It will also be used for M&A of a solid company.”
“We are currently actively reviewing bidding for Daewoo Securities with money raised from the rights issue,” a Mirae Asset Securities official said.
The stock market and analysts reacted badly to the capital increase decision. Mirae Asset Securities shares sank nearly 18 percent to 32,150 won.
Eugene Investment & Securities said the company’s capital increase plan has vastly magnified uncertainties surrounding the firm, adding that it will withhold setting a target price on the company shares for some time.
“Daewoo Securities acquisition is an issue that has not been expected. Given that, investors feel more uncertain about its share prices,” said Seo Bo-ick, an analyst at Eugene Investment & Securities.
“If the rights issue is for buying out Daewoo Securities, it is not all that negative … but if it fails to buy Daewoo, Mirae Asset will lack an alternative plan that is good enough to overlook the share dilution [from capital increase],” Seo said.
A string of brokerages lowered their target price in the securities firm; Samsung Securities cut its target price on the firm to 40,000 won from the previous 70,000 won, and Daishin Securities cut its target price by nearly half to 33,000 won from a previous 64,500 won. KB Investment & Securities cut its target price by more than half to 38,000 won from 80,000 won
Given that Mirae Asset’s current market cap is around 1.4 trillion won, many analysts feel an additional capital increase of 1.2 trillion won is too big for the market to digest.
“Another concern is Mirae Asset may end up paying too much for Daewoo given the competition with other firms,” said Chang Hyo-sun, an analyst at Samsung Securities.
Daewoo Securities, the country’s No.2 brokerage, is widely expected to be priced at around 2 trillion won when its major shareholder Korea Development Bank offers its 43 percent stake in the firm.
Winning Daewoo may not be an easy feat for Mirae Asset, as the country’s major financial firm KB Financial Group and China’s Citic are both said to be seriously interested in purchasing the company.
KB Financial is said to be desperate after failing in its earlier bid to buy Woori Investment & Securities from Nonghyup Financial Group.
The sale of Daewoo Securities comes at a time when local commercial lenders are struggling to make profits, with the brokerage business emerging as the new darling and revenue generator for financial companies.
The country’s current No.1 brokerage is NH Investment & Securities with around 4.5 trillion won in assets. Daewoo, the No.2, has about 4.3 trillion won in assets.
By PARK JUNG-YOUN [firstname.lastname@example.org]