SEOUL, Oct. 8 (Korea Bizwire) — South Korean securities companies are waging a fierce competition to take over KDB Daewoo Securities Co., one of the nation’s leading brokerages, in a deal that could come as a game changer for the industry.
The Korea Development Bank (KDB), a state-run policy lender, is seeking to sell off its stake in brokerage unit KDB Daewoo Securities Co. as part of the government’s privatization plan.
A successful buyer is widely expected to take the lead in reshaping the landscape of the country’s brokerage sector as KDB Daewoo Securities is one of the top players.
According to the latest industry data, KDB Daewoo Securities ranked second in terms of capital base with 4.3 trillion won (US$3.71 billion), following NH Investment & Securities Co. with 4.5 trillion won. It specializes in investment banking and the brokerage business and has 103 nationwide branches.
KDB owns a 43 percent stake in KDB Daewoo Securities, estimated at 1.77 trillion won, but the lender said the buyer should purchase a 100 percent share in KDB Asset Management Co. in a package deal.
Industry watchers expect the stake to fetch up to 2.3 trillion won as big-name financial companies have waded into the most lucrative auction in the history of the country’s brokerage industry.’
Among the prospective buyers are KB Financial Group Inc., the largest banking giant by assets, Mirae Asset Group, Korea Investment Holdings Co. and China’s CITIC Group.
KB Financial, which has retail bank and life and non-life insurance firms under its wing, is the odds-on favorite with its capacity to secure funds to buy the package.
It has already picked two brokerage houses — Morgan Stanley and KB Investment & Securities Co. — as advisory agencies for a possible acquisition.
KB Financial is aiming to strengthen its non-banking business, given that its flagship Kookmin Bank accounts for more than 70 percent of the group’s total net profit. Its brokerage unit, KB Investment & Securities, is a mid-size firm with a capital base of 609.8 billion won as of end-June, with a net profit of 33.5 billion won.
“KB Financial is considering acquiring Daewoo Securities in a bid to meet customers’ needs through cross-sectoral collaboration and diversify our business portfolio,” said an official from the banking group, who asked not to be named due to the sensitivity of the issue.
If KB Financial acquires Daewoo Securities, the merged firm would become the industry leader by total capital, beating current No. 1 NH Investment, and have the advantages of bond transactions and a retail brokerage business.
Mirae Asset Group, a leading asset management expertise firm, is running closely behind KB Financial.
The group has expressed its bid to acquire Daewoo Securities after its brokerage unit, Mirae Asset Securities Co., decided to sell 1.2 trillion won worth of stock to raise the money.
The combined capital of Daewoo Securities and Mirae Asset Securities would reach nearly 7 trillion won, the biggest-ever brokerage house in South Korea, which Mirae Asset says is expected to create a synergy in asset management and retail brokerage.
Korea Investment Holdings has also thrown its hat into the ring as part of its long-term business strategy to diversify its overseas business portfolio.
Daewoo Securities has 10 overseas branches in eight countries, including China, Indonesia and Vietnam.
China-based CITIC Group is said to be one of the foreign hopefuls as it has expressed its strong interest to enter the South Korean financial market.
But some think that the Chinese firm will pull out of the race as its high-ranking officials have been under a state investigation for being embroiled in an insider trading scandal.
Market watchers said that in order to become the owner of Daewoo Securities, the candidates should first try to determine the intention of the financial authorities that substantially control the brokerage firm through the state-run KDB.
KDB has stressed that it will select a buyer who can “contribute to the development of the local financial market,” although it will not rule out foreign bidders.
“It is very hard to anticipate the result of the competition at this point,” said Kang Seung-gun from Daishin Securities Co. “Sale prices, the review process and other factors will be key points in the auction.”