SC Lowy has announced the joint acquisition of a controlling stake in South Korea’s Shinmin Mutual Savings Bank in a deal that will likely give the Hong Kong-based firm a sizeable portfolio of non-performing loans (NPLs).
According to the deal terms, SC Lowy, a distressed and illiquid assets specialist, and Yuli PE have jointly acquired 86.9% of Shinmin from Korean construction company Samhwan Corporation.
The price of the transaction was not disclosed, but Samhwan, in a statement to the Korea Exchange in July last year, said it would sell a 65.8% stake in Shinmin to the pair for Won4.2 billion ($3.9 million).
Korean regulatory approval for the deal was granted in October. Early this month, a Won16.5 billion rights issue for Shinmin was completed, which increased the total value of its equity capital to Won18.9 billion and took its tier one capital ratio to 20%, according to SC Lowy. It did not specify the bank’s tier one ratio prior to the rights issue.
SC Lowy and Yuli PE have each gained stake of 43.45% in Shinmin, which will be rebranded as Choeun Mutual Savings Bank. Last month, SC Lowy co-founder Lee Soocheon was appointed a managing director of the bank, while former Yuli PE chief executive Lee Ho-Jun took on the CEO title at Shinmin.
In a statement, SC Lowy describes the acquisition of Shinmin as a "natural extension" of its business that will enable it to “capitalise on the significant opportunities that will result from an onshore presence”, without elaborating. The firm declined a request for further comment by AsianInvestor.
Shinmin was delisted from Korea Exchange in February last year. It was among a string of delistings and closures of savings banks in the country over the past few years.
Eleven out of 16 savings banks that announced earnings in the second half of 2012 had posted deficits, with Shinmin among them, according to government data cited by Korean media.
Korea’s banks have been burdened by NPLs, with smaller, so-called saving banks the first in the line to feel the strain.
In early 2011, the country’s top lenders pledged to help the saving banks – which have been particularly hit by insolvent property loans – but later that year backed down on their promise.
Large lenders are also feeling the strain of NPLs on their books, accounting for 2.9% of Woori Bank loans as of the end of September 2013, according to Korean media, which citied Financial Supervisory Service (FSS) data. Kookmin Bank had a 1.9% bad loan ratio, while Standard Chartered Korea had 1.5% and Citibank Korea 1.4%.
Delinquent loans by all banks totalled Won12 trillion as of end-November, according to the most recent data available from the FSS.
Shinmin will likely have a sizable book of NPLs – a distressed asset that SC Lowy is familiar with. Earlier in their careers, co-founders Soocheon Lee and Michel Löwy cut their teeth investing in Korean NPLs, along with those from Japan and Thailand. The pair had led Deutsche Bank’s Asian distressed products group before founding SC Lowy in 2009.
Little is known about SC Lowy’s partner in the Shinmin deal, Yuil PE. It has been described by SC Lowy as a private equity firm that participates in M&A, restructuring and buyout activities in Korea, that is leading numerous transactions on- and offshore.
Better known is the seller of Shinmin’s stake, Samwhan Corp – a mid-size Korean construction firm that fell into receivership for a six-month period ending in January last year. Samwhan sold assets and undertook a firm-wide restructuring to pay debts and slash costs.
The Shinmin deal follows SC Lowy’s $85 million debtor-in-possession financing last year to Korea Line Corp, a provider of marine transportation services.