Hana-KEB deal delay weakens both: Moody’s

Analyst says extended FSC deadlock especially damaging for KEB


The financial regulator’s delay in approving Hana Financial Group’s bid of Korea Exchange Bank is credit negative for both lenders but especially for the lender long been put up for sale, credit rating agency Moody’s said Thursday.

“We gave an A2 to KEB because one, their performance was good and two, we expected it to be sold over to Hana, a financially sound institution. So a blow to this deal is credit negative for KEB,” Choi Young-gil, Hong Kong-based senior analyst at the credit rating agency told reporters in Seoul.

Strong labor union activities against the deal, exposed through the proposed merger, also pose a risk for KEB.

Choi said the delay isn’t as bad for Hana as it has been accumulating capital reserves to pay for the deal, but said its management would have to deal with unhappy shareholders.

The rating outlook for the two Korean banks follows Financial Services Commission’s decision that it will not rule on the deal anytime soon from last Thursday. Moody’s currently has A2 positive rating for KEB and A1 stable for Hana.

Hana Financial Group signed an agreement with U.S. hedge fund Lone Star last November to purchase 51 percent stake in KEB for 4.69 trillion won.

The proposed deal with Hana was Lone Star’s third attempt to sell its majority stake at KEB after the FSC withheld the approval of the sale to Kookmin Bank and HSBC in 2006 and 2007 respectively.

“Should the delay lead to a blow, Hana would have to utilize 4.9 trillion won of excess capital elsewhere but from our perspective it isn’t easy for them to find a target of similar size with strong foreign exchange arm,” Choi added.

Hana Financial Group chairman Kim Seung-yu this week said his company is mulling options to make the deal happen. If the FSC does not grant approval for the sale of KEB by May 24, either can walk away from the deal without penalty.

“There’s about 10 days left, so both sides are discussing what good options there may be for the deal,” Kim said.

Lone Star is fighting allegations that it manipulated share price of KEB’s credit card unit to knock down the merger price back in 2003.

By Cynthia J. Kim (cynthiak@heraldcorp.com)