* Agreement brings to end ING's 17-month-old S.Korea sale process
* Deal leaves ING with Japan insurance unit to sell
* MBK seeking 1 trln won loan to finance the bid
* ING will book 950 mln euros loss on the sale
By Joyce Lee and Denny Thomas
SEOUL/HONG KONG, Aug 26 ING Groep edged closer to completing its year-and-a-half-old Asia divestment plan after private equity firm MBK Partners agreed to buy its South Korean insurance unit for total cash proceeds of 1.84 trillion won ($1.65 billion).
Under the agreement announced on Monday, the bailed-out Dutch insurer will retain about a 10 percent stake in the South Korean unit and allow MBK to use the ING brand for up to five years.
The sale of the South Korean unit will leave ING with its Japan insurance unit left to sell, bringing it closer to fulfilling its agreement with European regulators to offload more than 50 percent of its Asian operations by the end of 2013.
Since its rescue in 2008, ING has dismantled its once-fashionable banking and insurance model and announced thousands of job cuts and other cost savings. ING has raised about 23 billion euros ($31 billion) in total from divesting insurance, investment management and other assets to repay state aid.
ING will own a 120 billion won stake in the South Korean unit, confirming an earlier Reuters story.
"I am convinced that with the support of MBK Partners, ING Life Korea will continue to grow its customer offering and build on its position as the fifth-largest insurance company in the Korean market," Jan Hommen, CEO of ING Group, said in a statement.
"Through its 10 percent stake, ING will be able to benefit from that growth potential," he added.
The deal values ING Life Korea, the nation's biggest foreign insurer, at 9.2 times fiscal year 2012 earnings and 0.73 times book value as of March 31, 2013, the statement added. South Korean life insurers on average trade at a price-to-book ratio of 0.83, according to Thomson Reuters data.
But ING will take an after-tax loss of about 950 million euros ($1.3 billion) to be booked in the third quarter of 2013. The transaction is subject to regulatory approval and is expected to close in the fourth quarter of 2013.
ING shares were down 0.2 percent in early trade, while the benchmark Amsterdam index was flat.
LARGEST S.KOREA INSURANCE M&A
Established in 1987, ING Life Korea is South Korea's largest foreign life insurer, with about 1.3 million customers, more than 1,000 employees and approximately 6,800 tied agents.
MBK, which is seeking about $2.6 billion in a new private equity fund, will fund the deal with a 1 trillion won syndicated loan, Basis Point reported last week. It is the largest private equity firm in South Korea, with more than $8 billion in capital under management.
If completed, it will be South Korea's largest insurance M&A deal, surpassing the $1 billion purchase of a 24 percent stake in Kyobo Life Insurance Co last year by a consortium led by private equity firm Affinity Equity.
MBK recently entered exclusive talks for the controlling stake after the insurance unit attracted a total of four bids in May, including from Tong Yang Life Insurance Co Ltd, Hanwha Life Insurance Co Ltd and Kyobo Life Insurance Co Ltd, sources previously told Reuters.
But the sale of the South Korean unit had never been a smooth process. In December last year, KB Financial Group Inc walked away from a $2.1 billion bid to buy the unit. In June, a Tong Yang-Vogo Fund consortium also dropped out after entering exclusive talks to buy the unit, South Korean media reported.
ING's Japanese insurance unit stopped selling variable annuities in 2009 and it was unclear when ING would reach an agreement on its sale. The Japanese financial regulator is reluctant to let a private equity firm own that business, sources previously reported.
ING is also seeking buyers for its stake in Thailand TMB Bank, Reuters previously reported.
Last year, ING sold its Hong Kong, Macau and Southeast Asian insurance operations for a combined $3.87 billion in an auction that generated strong bidding.
A spokesman for MBK declined to comment.
ING was advised by Goldman Sachs and J.P. Morgan , while Barclays was the financial adviser to MBK, sources told Reuters.