Hana Financial Faces 'Obstacles' in Domestic M&A... The-K Non-Life Insurance Licensing Uncertain (Comprehensive)

Labor Union of The-K Non-Life Insurance Opposes Employment Succession Conditions
Worse Yet, Financial Authorities' Approval Review May Again Hinder Major Shareholder Eligibility
Hana UBS Asset Management, Lotte Card Face Repeated M&A Difficulties or Failures

[Asia Economy Reporters Haeyoung Kwon, Minyoung Kim] Hana Financial Group's attempt to acquire The-K Non-Life Insurance is facing difficulties. The union of The-K Non-Life Insurance is opposing Hana Financial over employment succession conditions, and even if both sides reach an agreement, there is a high possibility that financial authorities will block the approval. Following Hana UBS Asset Management, Lotte Card, and The-K Non-Life Insurance, Hana Financial is repeatedly encountering obstacles in mergers and acquisitions (M&A).

According to financial authorities and the financial sector on the 7th, as Kim Jung-tae, chairman of Hana Financial Group, is pushing for the acquisition of The-K Non-Life Insurance to strengthen the non-banking sector, the major shareholder suitability review by financial authorities is emerging as a potential final variable in the approval process.

A financial sector official said, "I understand that the prosecution's investigation into allegations of preferential promotion of a Hana Bank executive has not been completed," adding, "This could be a reason to suspend the major shareholder suitability review during the M&A approval process by financial authorities, making it difficult to clear the approval hurdle even if the acquisition contract for The-K Non-Life Insurance is signed."

Hana Financial resolved at its board meeting on the 20th of last month to acquire 70% of The-K Non-Life Insurance shares, which are 100% owned by the Korea Teachers' Credit Union. The sale price is reported to be about 100 billion KRW. The problem lies in the major shareholder suitability review. Chairman Kim was reported to the prosecution in June 2017 on suspicion of preferentially promoting a Hana Bank employee who managed funds for Choi Soon-sil, and the prosecution's investigation is still ongoing.

The acquisition of Hana UBS Asset Management shares by Hana Financial Investment has also seen no progress for over two years due to this issue. In September 2017, Hana Financial Investment agreed to acquire 51% of Hana UBS Asset Management shares held by Swiss UBS AG to make it a wholly owned subsidiary. However, in December of the same year, the Financial Services Commission suspended the major shareholder suitability review due to the prosecution's investigation into preferential promotion allegations, and Hana Financial Investment has not been able to acquire the shares for over two years. It is also reported that UBS AG has conveyed to Hana Financial Investment its intention to file a lawsuit if the share acquisition contract is not fulfilled.

Typically, financial authorities review both the Financial Holding Companies Act and individual laws during the major shareholder suitability review related to approvals. Depending on which law is applied, the outcome of the suitability review may differ. The market widely expects that approval for The-K Non-Life Insurance acquisition will not be easy until legal uncertainties are resolved. Since the actual major shareholder is Hana Financial, if the asset management company acquisition review is suspended while other affiliates are allowed, fairness issues may arise, so a highly conservative approval review is anticipated.

An official from the Financial Supervisory Service said, "We will review the application if Hana Financial applies for approval of The-K Non-Life Insurance acquisition."

To make matters worse, the union of The-K Non-Life Insurance is opposing Hana Financial because Hana Financial deleted a pre-sale agreement condition between the union and the Teachers' Credit Union that required consultation with the union when outsourcing employees. They argue this is a prelude to restructuring. Hana Financial must first overcome union opposition and then clear the financial authorities' approval hurdle.

Hana Financial has recently failed to show significant results in domestic M&A. Although it acquired Korea Exchange Bank in 2012 and the remaining shares of Hana HSBC Life in 2013, subsequent acquisitions such as Hana UBS Asset Management, Lotte Card, and The-K Non-Life Insurance have all faced difficulties due to suspension of approval reviews, losing bids, and union opposition. Especially before the Lotte Card acquisition in May last year, Chairman Kim personally visited Financial Supervisory Service Governor Yoon Seok-heon to request approval support, showing strong determination, but ultimately the acquisition went to the MBK Partners-Woori Bank consortium.

On the other hand, overseas, Hana Financial is expanding its M&A activities mainly in Southeast Asia. In November last year, Hana Bank acquired a 15% stake in BIDV, one of Vietnam's four major state-owned commercial banks, for 1.0148 trillion KRW, becoming the second-largest shareholder. BIDV is a bank with total assets of 66.3 trillion KRW and net income of 380.9 billion KRW as of the end of 2018 on a consolidated basis. Through the BIDV acquisition, Hana Bank is expected to earn around 60 billion KRW in annual net profit. Additionally, it is pursuing the acquisition of a local bank in Myanmar.

A financial sector official said, "Hana Financial started as a single company in 1971 and has grown through M&A, but since acquiring Korea Exchange Bank, it has not achieved clear results domestically," adding, "Recently, there is analysis that Hana Financial is shifting its focus to overseas M&A."

This content was produced with the assistance of AI translation services.