The Korea Deposit Insurance Corporation (KDIC) is said to have asked Hanwha Life Insurance(088350) to explain the risks that could arise from acquiring Aequon Capital and Aequon Savings Bank. The KDIC holds 10% equity in Hanwha Life Insurance through public funds and plans to sell it by the end of next year to recover the funds. Because the stock price must not plunge at the time of public fund recovery, the KDIC has begun a pre-check of acquisition risks.
According to the financial industry on the 7th, the KDIC recently asked Hanwha Life Insurance whether it had sufficiently reviewed the acquisition price of Aequon Capital and Aequon Savings Bank and the potential decline in the risk-based capital ratio (K-ICS, K-ICS) due to the acquisition. The aim is to confirm whether Hanwha Life Insurance properly assessed the corporate value of Aequon Capital and Aequon Savings Bank and calculated the acquisition price. It is also said to have focused on checking how much the K-ICS ratio would fall if it acquired equity in unlisted companies, which are classified as risky assets.
The K-ICS ratio is an indicator created to assess whether an insurer can properly pay insurance claims in the event of an accident. A decline in this ratio is perceived as a deterioration in an insurer's financial soundness. If it acquires risky assets such as stocks, it must set aside more capital to maintain the K-ICS ratio. Hanwha Life Insurance is said to have provided no explanation other than the response to the KDIC that it was selected as the preferred negotiating party for Aequon Capital and Aequon Savings Bank and is in talks.
On June 6, EQT Partners, the largest shareholder of Aequon Capital, selected Hanwha Life Insurance as the preferred negotiating party for the acquisition of Aequon Capital. The stake up for sale this time is 96.06% equity in Aequon Capital held by EQT Partners. Because Aequon Capital holds 100% equity in Aequon Savings Bank, the deal packages the two corporations together.
Hanwha Life Insurance is a company reorganized on the basis of Daehan Life, which became distressed during the foreign exchange crisis. Beginning in 1999, the KDIC injected a total of 355 billion won in public funds to secure 100% equity in Daehan Life. It then sold down its equity in stages, reducing it to about 10% now. The unrecovered public funds tied to Hanwha Life Insurance equity held by the KDIC are about 1 trillion won. To recover the full amount, the share price would need to be in the 11,000 won per share range, but the current price is in the 4,000 won range.
The KDIC must sell its Hanwha Life Insurance equity by the end of next year, when the KDIC bond redemption fund is wound down. The KDIC bond redemption fund was set up to recover public funds injected during the foreign exchange crisis. With about a year left until the equity sale, from the KDIC's perspective it is necessary to pre-check issues that could weigh on the stock price.
Last year, Aequon Capital posted standalone net profit of 45.5 billion won, up 16.9% from the previous year. In contrast, Aequon Savings Bank's net profit was 65.6 billion won, down 18.2% year over year, and its delinquency rate was tallied at 4.52%. Although the savings bank sector's soundness has been recovering recently, concerns remain about insolvency, with the average delinquency rate still in the 6% range. A KDIC official said, "We plan to continue asking questions about the areas that need to be checked while monitoring the acquisition progress."