Some funds could be used for deals, source says
By Park Hyong-ki
Shinhan Financial Group is expected to raise 1 trillion won ($1 billion) through the issuance of hybrid bonds denominated in both local and foreign currencies, said a source with knowledge of the situation.
The group has recently completed analyzing demand for hybrid bonds worth 400 billion won it is seeking to raise from institutional investors this month. KB Securities and Samsung Securities will be underwriting the bonds, according to a regulatory filing on August 17.
Earlier this month, Bank of America Merrill Lynch, Credit Suisse, HSBC and Mizuho Bank managed the issuances of Shinhan's dollar-denominated bonds worth $500 million.
Its series of fundraising through hybrid bonds that hold a characteristic of equity and debt comes as the group seeks to "rebalance its capital structure," the source said.
Some portion of the funds it raised could be used for future acquisition deals, but it is, foremost, to "reduce" its core capital, or known as tier 1 capital under the Basel Accord.
Its tier 1 capital ratio stands at 13.4 percent, the source noted. The Basel requires it to be above 10 percent.
By issuing its hybrid bonds with long-term maturities, Shinhan Financial would be able to raise its supplementary capital, or tier 2 capital.
Its tier 2 capital ratio stands at 1.5 percent. The Basel requires it to be at least 2 percent. Shinhan Financial's BIS capital adequacy ratio is 14.9 percent, well above the Basel standards. The higher ratio, the stronger and healthier it is against shocks from financial crises. Financial companies will be able to not only protect itself but also its customers.
Given hybrid bonds are classified as equity capital on the balance sheet, while other types of fixed-income securities are recorded as debt, Shinhan's core capital will be able to "lose some weight" as it issues the bonds, the source explained.
Besides rebalancing its capital structure, it is issuing hybrid bonds "while the market interest rates are still low and before the key rate increases in the near future," he added.
"But the group is obviously not ruling out the possibility of using some of the funds raised for future deals," the source said.
Shinhan Financial and MBK Partners, a local private equity giant, are currently negotiating over a price for the group to take over ING Life Insurance. Market analysts expect the acquisition of MBK's 59.15 percent stake in ING could cost Shinhan more than 2 trillion won. Morgan Stanley is managing the ING sale for MBK.
The source said should the two sides come to an agreement over the price and seal it, Shinhan is expected to send a "message" to the market as to how it will finance the deal.
As always, deals can be financed through a combination of bond issues, cash, equity swaps and debt, he noted.
The group has cash and cash equivalents of over 21 trillion won as of the end of June, according to its semiannual financial statements last week. Its biggest shareholders are the National Pension Service and investment manager BlackRock.
By Park Hyong-ki
 |
| Shinhan Financial Group headquarters in Seoul / Korea Times file |
The group has recently completed analyzing demand for hybrid bonds worth 400 billion won it is seeking to raise from institutional investors this month. KB Securities and Samsung Securities will be underwriting the bonds, according to a regulatory filing on August 17.
Earlier this month, Bank of America Merrill Lynch, Credit Suisse, HSBC and Mizuho Bank managed the issuances of Shinhan's dollar-denominated bonds worth $500 million.
Its series of fundraising through hybrid bonds that hold a characteristic of equity and debt comes as the group seeks to "rebalance its capital structure," the source said.
Some portion of the funds it raised could be used for future acquisition deals, but it is, foremost, to "reduce" its core capital, or known as tier 1 capital under the Basel Accord.
Its tier 1 capital ratio stands at 13.4 percent, the source noted. The Basel requires it to be above 10 percent.
By issuing its hybrid bonds with long-term maturities, Shinhan Financial would be able to raise its supplementary capital, or tier 2 capital.
Its tier 2 capital ratio stands at 1.5 percent. The Basel requires it to be at least 2 percent. Shinhan Financial's BIS capital adequacy ratio is 14.9 percent, well above the Basel standards. The higher ratio, the stronger and healthier it is against shocks from financial crises. Financial companies will be able to not only protect itself but also its customers.
Given hybrid bonds are classified as equity capital on the balance sheet, while other types of fixed-income securities are recorded as debt, Shinhan's core capital will be able to "lose some weight" as it issues the bonds, the source explained.
Besides rebalancing its capital structure, it is issuing hybrid bonds "while the market interest rates are still low and before the key rate increases in the near future," he added.
"But the group is obviously not ruling out the possibility of using some of the funds raised for future deals," the source said.
Shinhan Financial and MBK Partners, a local private equity giant, are currently negotiating over a price for the group to take over ING Life Insurance. Market analysts expect the acquisition of MBK's 59.15 percent stake in ING could cost Shinhan more than 2 trillion won. Morgan Stanley is managing the ING sale for MBK.
The source said should the two sides come to an agreement over the price and seal it, Shinhan is expected to send a "message" to the market as to how it will finance the deal.
As always, deals can be financed through a combination of bond issues, cash, equity swaps and debt, he noted.
The group has cash and cash equivalents of over 21 trillion won as of the end of June, according to its semiannual financial statements last week. Its biggest shareholders are the National Pension Service and investment manager BlackRock.
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