April 21, 2010 / 2:24 AM / 10 years ago

ANZ considering buying $4 bln KEB stake

SEOUL/MELBOURNE (Reuters) - Australia and New Zealand Banking Group is preparing to make a bid for Lone Star’s LS.UL $4 billion controlling stake in Korea Exchange Bank, two sources said, as Australia’s No.4 lender looks for major deals in its bid to expand.

ANZ (ANZ.AX) is an unexpected contender for South Korea’s sixth-biggest lender, which U.S. private equity fund Lone Star bought in 2003 and is seeking to sell after years of delays due to legal debates.

With its sound balance sheet and ambition to grow, ANZ could make a strong bidder for KEB 004940.KS, in what would be South Korea’s biggest banking deal to date, and one which would give a foreign buyer a sizeable foothold in Asia’s No.4 economy.

“It’s the cheapest market for banking still in Asia,” said RBS analyst John Buonaccorsi.

“Multiples across the market in Korea are quite low, certainly compared to most of the Southeast Asian markets which have recovered quite strongly in the last 12 or 18 months. That’s probably the attraction, and of course the fact that this stake is ... from a reasonably willing seller.”

South Korea’s banking industry is facing a major landscape change this year with the KEB’s sale and the upcoming privatization of state-owned Woori Finance Holdings 053000.KS, the country’s No. 3 banking group.

Shares in KEB rose more than 3 percent at one point following the news, as investors have been waiting to see response from potential buyers for the bank. The stock was up 2.2 percent by 0314 GMT, leading the Seoul market's .KS11 1.2 percent gain.

Lone Star’s 51 percent stake in the bank was worth around 4.54 trillion won ($4.06 billion) as of Tuesday’s closing.

ANZ declined to comment a possible KEB deal but a spokesman said the bank always looks at acquisitions. Lone Star and Korea Exchange Bank declined to comment.

TRANSFORMATIONAL DEAL

ANZ CEO Michael Smith told Reuters in an interview on Tuesday he wanted a transformational deal to catapult the bank into the Asia big league alongside HSBC (HSBA.L)(0005.HK) and Standard Chartered (STAN.L)(2888.HK).

He also said in March that ANZ wants to expand in South Korea and Japan, given the trade flows between Australia and the two countries.

“(But) when you look at the performance of foreign players here, such as HSBC and Standard Chartered, it has not been great,” said Daewoo Securities analyst Ku Yong-uk.

“KEB has strength in forex dealings and is using that network in corporate lending, but we don’t know if a foreign ownership can maintain the model.”

One source close to the matter said on Wednesday ANZ has started preliminary work to bid for the KEB stake but has not yet appointed an adviser.

South Korean news agency Yonhap Infomax reported earlier on Wednesday ANZ was the sole investor so far to respond to teaser letters Lone Star recently sent to potential buyers of KEB and was “aggressive” in seeking the deal.

Credit Suisse CSGN.VX, which is advising Lone Star, declined to comment on any progress in the deal.

BIDDERS IN THE WINGS

HSBC is another foreign investor being closely watched for a possible bid for KEB after its earlier attempt to buy the South Korean lender failed.

Analysts said ANZ’s interest may also prompt potential Korean suitors such as KB Financial Group (105560.KS) to join the race.

“Local banking groups interested in KEB such as KB and Hana may become nervous as foreign rivals emerge, because initially they expected few,” said Daewoo’s Ku.

Top local lender KB Financial had been considered one of the strongest candidates to acquire KEB but banking sources said the group is now considering a deal with Woori Finance Holdings 053000.KS instead as the government plans to privatize the state-owned Woori.

Smaller rival Hana Financial Group (086790.KS) is also interested in KEB but does not have enough cash in hands, analysts said.

Lone Star bought KEB for $1.2 billion and sold down part of its stake in 2007. Its previous attempts to sell KEB — to Kookmin Bank for $7.3 billion in 2006 and HSBC for $6.3 billion in 2008 — failed due to pricing and legal disputes over the U.S. fund’s South Korean activities.

Most of legal issues have since been resolved in court.

Additional reporting by Sonali Paul in SYDNEY; Editing by Jonathan Hopfner and Valerie Lee

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