South Korea’s KB Financial Group must reinforce capital base by 1.04 trillion won ($847.6 million) to stay financially sound to add Prudential Life Insurance Co. to its family, a move that could dilute its shareholders’ value and increase financial burden at a time of uncertainty from COVID-19 fallouts.
According to the Financial Supervisory Service on Wednesday, KB Financial Group posted a double leverage ratio of 125.59 percent as of September last year, with total equity of 19.24 trillion won and capital injection into subsidiaries of 24.16 trillion won.
If the company pays 2.2 trillion won for a full stake in Prudential Life Insurance as it has offered, its capital injection into subsidiaries rises to 26.36 trillion won, pushing up the double leverage ratio to 137.03 percent.
In Korea, financial holding firms are recommended to maintain their double leverage ratio of 130 percent or below. This means KB Financial holding company needs to raise its total equity capital by 1.04 trillion won to 20.28 trillion won to meet the requirement.
KB Financial announced in a disclosure on March 13 its decision to sell 300 billion won worth hybrid debts. While it remains to be seen whether the offer would be fully subscribed amid increasing volatility in the debt market, it needs to raise another 700 billion won, which would dilute share value.
But the company denies any plan to issue new shares to raise its capital for now. Instead it will rely on dividends from its affiliates, said an official at KB Financial Group.
The company has already collected dividends from mainstay banking unit KB Kookmin Bank to shoulder 1 trillion won for the government’s stock market stabilization fund.
Prudential Life Insurance’s return on equity (ROE), a measure of profitability, hovers around 5 percent, whereas KB Financial Group boasts 7-8 percent. Some now raise doubts about the capital efficiency after acquisition.
KB Financial Group has recently gained a lead in the horserace over mid-sized insurer Prudential Life Insurance after reportedly handing the highest bid of 2.2 trillion won. The result to pick the preferred bidder for the life insurer will be out this week.
KB Financial Group shares on Thursday finished 2.81 percent higher at 32,900 won in Seoul.
By Han Woo-ram and Lee He-yeon
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]