The Korea Deposit Insurance Corporation (KDIC) has launched a risk review of Hanwha Life Insurance’s (088350) planned acquisition of Acuon Capital and Acuon Savings Bank. With a mandate to sell its 10% stake in Hanwha Life—held as public funds—by the end of next year, the KDIC has confirmed it is demanding specific explanations from Hanwha Life to preemptively assess the deal’s impact on the company’s stock price.
According to financial industry sources on the 7th, the KDIC recently questioned Hanwha Life on whether it had sufficiently reviewed the valuation basis for Acuon Capital and Acuon Savings Bank, as well as the potential decline in its solvency ratio (K-ICS) following the acquisition. The core issues are whether Hanwha Life appropriately valued the unlisted Acuon Capital and Acuon Savings Bank, and whether it has properly analyzed the changes in financial soundness indicators resulting from the incorporation of risk-weighted assets.
The K-ICS ratio is a key metric that assesses whether an insurer can properly pay claims in the event of unexpected losses. A decline in this figure is interpreted by the market as a deterioration in the insurer’s financial health. Notably, stakes in unlisted companies are classified as risk assets, requiring higher capital reserves upon acquisition and potentially burdening K-ICS ratio management. A KDIC official stated, “We plan to continuously inquire about matters that need verification as we monitor the progress of the acquisition.”
Hanwha Life is reported to have offered no specific explanation to the KDIC beyond confirming that it has been selected as the preferred bidder for Acuon Capital and Acuon Savings Bank and is currently in negotiations. In June, private equity firm EQT Partners selected Hanwha Life as the preferred bidder for the sale of Acuon Capital. The sale involves EQT Partners’ 96.06% stake in Acuon Capital, and since Acuon Capital holds a 100% stake in Acuon Savings Bank, the two financial companies are being sold as a package.
Behind the KDIC’s heightened sensitivity lies the critical task of recovering public funds. Hanwha Life is a company restructured from the insolvent Daehan Life during the Asian Financial Crisis, into which the government injected a total of 3.55 trillion won (approximately $2.5 billion) in public funds starting in 1999. Through its 2010 listing, the KDIC secured a 24.75% stake, which has since been reduced to the current 10% level through continuous divestment.
The problem is the gap between the scale of unrecovered public funds and the stock price. The unrecovered public funds tied to the KDIC’s stake in Hanwha Life are estimated at approximately 1 trillion won (approximately $704.3 million). To fully recover this amount, the stock price would need to reach the 11,000 won range per share, but it currently languishes in the 4,000 won (approximately $2.82) range. The KDIC faces a deadline to sell its Hanwha Life stake by the end of next year, when the Deposit Insurance Fund Bond Redemption Fund is liquidated. With just over a year remaining until the divestment, preemptively scrutinizing a large-scale M&A deal that could act as a downward pressure on the stock price is an essential risk management procedure for the KDIC.
The performance of the acquisition targets, Acuon Capital and Acuon Savings Bank, is mixed. Last year, Acuon Capital posted a net profit of 45.5 billion won (approximately $32.0 million) on a standalone basis, up 16.9% year-on-year. In contrast, Acuon Savings Bank’s net profit fell 18.2% year-on-year to 65.6 billion won (approximately $46.2 million), with its delinquency rate reaching 4.52%. The fact that concerns over insolvency have not been fully resolved—with the average delinquency rate for the entire savings bank sector still in the 6% range—is also cited as a factor increasing the acquisition risk.
Market observers are noting the possibility that the KDIC’s inquiry goes beyond a simple request for information, potentially serving as a check on the overall acquisition process. Some speculate that a large-scale M&A deal involving a financial company backed by public funds, coinciding with a government agency’s fund recovery schedule, could lead to adjustments in deal terms or changes in the acquisition structure. However, the KDIC maintains that its current focus is on transparently identifying risks rather than obstructing the acquisition.
For Hanwha Life, failure to adequately respond to the KDIC’s verification demands could damage the credibility of the acquisition process. Particularly if the decline in the K-ICS ratio is larger than expected, it could trigger additional capital reserve requirements from financial authorities or market concerns, necessitating meticulous simulations. An industry insider noted, “An insurer’s acquisition of a non-financial subsidiary typically has a negative impact on the K-ICS ratio, so they must be able to comprehensively explain not only the acquisition price but also the post-acquisition capital management plan.”