Will Hana push for takeover of Lotte Card?

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Will Hana push for takeover of Lotte Card?

The Hana Financial Group's building in Euljiro, Seoul / Courtesy of Hana Financial Group

By Jhoo Dong-chan

Hana Financial Group has demonstrated its strong determination to acquire Lotte Card in a bid to strengthen the group's non-banking business.

But the government's stance to tighten card firms' heated marketing competition is emerging as a hurdle to the group's efforts to boost its card unit even if it acquires Lotte Card.

The Financial Services Commission said Tuesday it has decided to prohibit firms' excessive marketing of new credit card products.

Nonetheless, it is highly likely that the nation's third-largest financial group will push for the takeover as it urgently seeks to enhance its non-banking sector to compete with other financial groups.

With its 8 percent market share, KEB Hana Card is currently the nation's seventh-largest card firm. If it acquires Lotte Card, Hana Card could become the second- or third-largest, competing against Shinhan and Samsung Card.

According to industry sources, Hana Financial decided to issue 265 billion won ($232.4 million) worth of hybrid securities, Tuesday, to increase its capital base.

Hybrid bonds, which can be converted into equity, are considered to be either an asset or a debt depending on their purpose on the balance sheet, an attractive option for financial companies who need to expand their capital.

Sources claim the group is issuing the bonds to secure enough cash to acquire the card firm, but a Hana Financial Group official denied this.

"The issuance is aimed at raising our Bank for International Settlements (BIS) capital adequacy ratio," said the official.

The Financial Supervisory Service (FSS) recommends financial groups maintain their leverage ratio below 130 percent.

A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt or assesses the ability of a company to meet its financial obligations. The ratio is calculated by dividing a firm's total debt by shareholder equity.

Hana Financial Group's leverage ratio currently stood at 125.6 percent, close to the FSS's recommendation of 130 percent.

"Hana Financial Group Chairman Kim Jung-tai stressed the importance to diversify the group's revenue sources," said an industry insider who is familiar with the issue.

"The group is still heavily dependent on its commercial banking unit. Strengthening its card unit will help diversify the group's business portfolio."

According to the FSS, Hana Financial Group's non-banking affiliates accounted for only about 20 percent of total earnings last year. Chairman Kim said the group aims to increase the ratio to 30 percent by the end of 2025.

Another industry source claimed other finalists in the bidding such as Hanwha Group, MBK Partners and IMM Private Equity, have become lukewarm toward a takeover of Lotte Card because of Hana's overwhelming cash reserves, but officials from each firm immediately denied this.

"The final bidding for Lotte Card is only a week away," said a Hanwha Group official.

"It's not appropriate to discuss the matter in detail at this point, but the allegations are not true."



The Hana Financial Group's building in Euljiro, Seoul / Courtesy of Hana Financial Group

By Jhoo Dong-chan

Hana Financial Group has demonstrated its strong determination to acquire Lotte Card in a bid to strengthen the group's non-banking business.

But the government's stance to tighten card firms' heated marketing competition is emerging as a hurdle to the group's efforts to boost its card unit even if it acquires Lotte Card.

The Financial Services Commission said Tuesday it has decided to prohibit firms' excessive marketing of new credit card products.

Nonetheless, it is highly likely that the nation's third-largest financial group will push for the takeover as it urgently seeks to enhance its non-banking sector to compete with other financial groups.

With its 8 percent market share, KEB Hana Card is currently the nation's seventh-largest card firm. If it acquires Lotte Card, Hana Card could become the second- or third-largest, competing against Shinhan and Samsung Card.

According to industry sources, Hana Financial decided to issue 265 billion won ($232.4 million) worth of hybrid securities, Tuesday, to increase its capital base.

Hybrid bonds, which can be converted into equity, are considered to be either an asset or a debt depending on their purpose on the balance sheet, an attractive option for financial companies who need to expand their capital.

Sources claim the group is issuing the bonds to secure enough cash to acquire the card firm, but a Hana Financial Group official denied this.

"The issuance is aimed at raising our Bank for International Settlements (BIS) capital adequacy ratio," said the official.

The Financial Supervisory Service (FSS) recommends financial groups maintain their leverage ratio below 130 percent.

A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt or assesses the ability of a company to meet its financial obligations. The ratio is calculated by dividing a firm's total debt by shareholder equity.

Hana Financial Group's leverage ratio currently stood at 125.6 percent, close to the FSS's recommendation of 130 percent.

"Hana Financial Group Chairman Kim Jung-tai stressed the importance to diversify the group's revenue sources," said an industry insider who is familiar with the issue.

"The group is still heavily dependent on its commercial banking unit. Strengthening its card unit will help diversify the group's business portfolio."

According to the FSS, Hana Financial Group's non-banking affiliates accounted for only about 20 percent of total earnings last year. Chairman Kim said the group aims to increase the ratio to 30 percent by the end of 2025.

Another industry source claimed other finalists in the bidding such as Hanwha Group, MBK Partners and IMM Private Equity, have become lukewarm toward a takeover of Lotte Card because of Hana's overwhelming cash reserves, but officials from each firm immediately denied this.

"The final bidding for Lotte Card is only a week away," said a Hanwha Group official.

"It's not appropriate to discuss the matter in detail at this point, but the allegations are not true."



Jhoo Dong-chan jhoo@koreatimes.co.kr


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