Deal focus: Affinity captures Korea credit card exposure

General Electric’s (GE) decision in 2015 to pare exposure to consumer finance in order to focus on its core industrial capabilities was expected to deliver a string of divestments worth approximately $200 billion. GE Capital has now signed agreements involving $198 billion in assets globally, with its South Korean businesses put up for sale last year.

In October, GE offloaded its remaining 20% interest in auto financing business Hyundai Capital Services, having earlier sold 23.3% to joint venture partner Hyundai Motor and its affiliate Kia Motors. However, the US company’s other local operation – credit card business Hyundai Card, another JV with Hyundai Motor – was a more complex proposition. Hyundai Motor was neither exiting the asset nor seeking to assume full control, so it was necessary to find a partner capable of working with the local giant.

Affinity Equity Partners prevailed in a more than six-month process that featured competing private equity and strategic interest. “The dynamics were complicated because Hyundai Motor is staying involved and there’s a strong CEO in place who happens to be the son-in-law of the chairman of Hyundai Motor,” says a source close to the transaction. “The key was finding a corporate governance structure that works for the incoming partner.”

Affinity was helped by a longstanding relationship with Hyundai Motor that stretches back to its 1999 acquisition of Mando Corporation, an auto parts manufacturer with close ties to Hyundai and Kia.

The GP brought in two co-investors, GIC Private and AlpInvest Partners, and they have agreed to buy 24% of Hyundai Card for KRW376.6 billion ($329 million). Foreign investment restrictions prevent a single party from owning 10% or more. Of the 43% interest being sold by GE, the remainder will go to Hyundai Commercial. The deal values Hyundai Card at KRW1.57 trillion.

When GE agreed to invest KRW678.3 billion in Hyundai Card in 2005, the company had 3.42 million customers and a 10% market share. It now has 5.4 million cardholders and a 14% market share, trailing Shinhan Card and Samsung Card, and ahead of KB Kookmin Card. Together they control about 60% of the industry. Revenue came to KRW2.65 trillion in 2015, while net profit reached KRW187.7 billion.

Hyundai Card’s strength derives from its position at the premium end of the market; it introduced the American Express-style “black card” concept to Korea and still enjoys a higher spend per user than its rivals. The company will seek to unlock new growth through corporate card partnerships and private label credit cards, as well as digital offerings that have already seen it pioneer one click payment locally.

“Unlike markets like China where Alipay and Tenpay are replacing credit cards, in Korea they are a very entrenched payment model,” the source adds. “Credit card companies must have direct relationships with merchants and customers, so mobile payment platforms are gateways rather than payment vehicles. This makes the market harder to penetrate.”

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• Topics
• North Asia
• Expansion
• Financials
• South Korea
• Affinity Equity Partners
• AlpInvest Partners N.V.
• GIC Private
• Financial Services