KB Fin directors seek to cut offer for ING's S.Korea insurance unit -sources

SEOUL/HONG KONG Fri Dec 14, 2012 9:06am GMT

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SEOUL/HONG KONG Dec 14 (Reuters) - Several independent board members of KB Financial Group Inc are pressing the company to cut its $2.05 billion offer for ING Groep's South Korean insurance business, sources said, raising doubts the deal will be completed.

The board of KB, considered a frontrunner to buy the ING unit, will meet on Dec. 18 to make a final decision on the offer. To win the backing of the full board, the Dutch financial group would have to agree to accept a price below KB's current offer, the sources said.

"The price is too high to account for the risks an insurance company currently faces," a source who had direct knowledge of the KB board's deliberations said.

The deal needs the backing of a majority of KB Financial's 12 directors who are entitled to vote. KB Chairman Euh Yoon-dae, KB President Lim Young-rok and Kookmin Bank President Min Byong-deok plus nine outside directors will determine the outcome of the deal at Tuesday's meeting.

A divided KB board failed to reach an agreement on the offer price when they met last week.

The sale of the South Korean unit is part of ING's wider Asia divestment programme to repay its 10 billion euro state bailout received during the global financial crisis.

ING has announced two deals worth $3.87 billion -- to sell its Hong Kong and Southeast Asian operations -- since launching the auction nine months ago. But it has struggled to find buyers for the much larger Japan and South Korea units.

The Dutch group has already trimmed its $2.2 billion asking price for the South Korean unit by nearly 7 percent to the current $2.05 billion, raising questions on how much lower it can go. The pressure on it to quickly divest the remainder of its Asia business has eased after it won more time from European Union regulators to repay the state assistance last month.

"ING is under no pressure to sell the South Korean business at a throw-away price," one person familiar with the process said, adding the Dutch firm has secured a good price for its Hong Kong and Southeast Asian operations.

ING has agreed to sell its Malaysia insurance unit to AIA Group Ltd and its Hong Kong and Thai insurance units to a company owned by Richard Li, the younger son of Asia's richest man, Li Ka-shing.

In a worst case, ING may have to restart the sale process from scratch. But its South Korean operations attracted very few bidders and, realistically, shopping the business to the same suitors is unlikely to solve the problem, the source said.

Under those circumstances, one option would be to pursue an IPO of the business in Seoul, the source added.

ING and KB declined to comment. The sources did not want to be identified because the sale process was confidential.

POLITICAL COMPULSIONS

KB Chairman Euh is keen to buy ING's operations and has been pushing hard to clinch the deal, set to be South Korea's biggest financial sector M&A transaction since Hana Financial Group bought Korea Exchange Bank from U.S. buyout firm Lone Star for 3.9 trillion won earlier this year.

Euh, who took the top job in 2010, is a close ally of South Korean President Lee Myung-bak. He is hoping to close the transaction soon, to avoid dealing with a new government and potentially new policy direction when Lee's term ends in February. Euh's own term will end in July.

A deal would reduce KB's high reliance on its banking business, which accounts for 75 percent of its total revenue.

But there are other complexities to the deal. South Korean regulators want KB Financial to finance the deal without jeopardizing the capital adequacy of its banking unit.

KB Financial is exploring funding options that would involve the company issuing a larger number of corporate bonds than it previously planned, a South Korean regulatory source said. ($1 = 1073.0500 Korean won) (Editing by Michael Flaherty and Muralikumar Anantharaman)

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