Bidder may form fund to buy Prudential assets

A final decision is likely by the end of this month or early February. Hanwha confirmed that it has placed a bid and is now mid-due diligence on pricing.

It is still unclear if the two entities will be sold as a package or separately, but industry sources said that the total deal value would be around between KRW500 billion and KRW1 trillion ($445 million-$891 million). The divestment plans of the US insurer’s asset management business in South Korea emerged around 3Q09, with media reports at the time already tagging KB and Hanwha as potential buyers. Mega-conglomerate Lotte Group, also cited as a potential buyer, said it had not participated in the bid.
Earlier, Hanwa Securies said that it may consider a capital increase through rights offering to help finance a planned purchase of Prudential Investment & Securities and its asset management affiliate. Concurrently, the company also reportedly said it was also considering forming a private equity fund, issuing corporate bonds, or opening up our own coffers to acquire these.

The windup of these units by Prudential, the second largest US insurer, seems reasonable given that the South Korean market has turned out to be quite a tough market to operate asset management business, as shown by other foreign funds’ performance in the past. Last year, Credit Suisse withdrew its fund management JV from the market, and the South Korean units of Goldman Sachs, JPMorgan and Alliance Bernstein are among fund houses that posted a loss in the first half of last year ending September, according to Korea’s Financial Supervisory Service. However, other firms with strengths in commodities and wider global networks are faring well, said local analysts.
With tax breaks on offshore funds lifted this year and interest in risky assets cooling after the global credit crisis, foreign asset managers in South Korea face further challenges.

The Korean market is said to be worth about $300 billion in asset management business, but overseas funds will have to work even harder to survive with the regulator lifting tax breaks. As for local firms such as banks and large conglomerates, this shrinkage of offshore funds may give further opportunities for them to foray into the asset management business, which could have synergies with their retail financial businesses.

Prudential plans to continue solely as an insurance business in Korea.

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• Topics
• Buyouts
• Financials
• North Asia