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DBS May Form Group to buy Korea Exchange Bank

DBS Group Holdings, Southeast Asia's largest lender, is contacting investors to form a multinational consortium to buy Korea Exchange Bank (KEB) from U.S. fund Lone Star, the Chosun Ilbo reported on Wednesday, citing unnamed sources.

KEB is one of the few targets in South Korea's banking sector for foreign buyers seeking growth, but a legal battle over Lone Star's 2003 purchase of KEB has put a sale on hold.

DBS, in which Singapore's state investor Temasek Holdings has a 28% stake, wouldn't comment on speculation concerning their merger and acquisition activities.

DBS said in a statement, "we are always on the lookout for organic and inorganic opportunities
that are accretive to our shareholders, and which extend our Asia banking franchise. In any inorganic initiative we pursue, we always adopt a disciplined approach and will only do the deal if it fits our strategic initiatives".

Last year, DBS bid for KEB, South Korea's fifth-biggest lender, but dropped out after the local regulator classified Temasek as a non-banking group, which would bar DBS from becoming a top shareholder in a South Korean bank.

"DBS should still be interested in KEB and forming a consortium is a way to skirt the qualification issue," said Koo Kyung Hwe, an analyst at Hyundai Securities. "The buyout price is likely to go higher this time, given KEB's increased asset value and profits so far."

Lone Star picked top South Korean lender Kookmin Bank to buy KEB last year, but scrapped the $7.3 billion sale in November due to escalating legal conflicts.

The Chosun Ilbo report helped KEB shares in the morning session Wednesday, outperforming the wider market's slight loss.

South Korea's National Agricultural Cooperative Federation, known as Nonghyup, and an unspecified Middle East-based investor were also among those contacted, the newspaper said.

A Lone Star spokeswoman in Seoul and Nonghyup declined to comment. Lone Star owns 64.62% of KEB, which has a total market value of 9.6 trillion won ($10.2 billion). It can sell up to a 70.87% stake in KEB by exercising options with other major shareholders.

Kookmin has said it would try to buy KEB if it is put up for sale again. A Kookmin spokesman said the bank was not aware of any discussions about the DBS-led consortium.

Hana Financial Group, South Korea's fourth-ranked lender and one of the previous bidders for KEB, said it had not been contacted by DBS.

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