The London-based Standard Chartered is poised to beat its British rival HSBC in the bidding battle for Korea First Bank, clinching a deal worth about $3.35bn (£1.8bn) that will give it a foothold in one of the fastest-growing Asian economies. The deal is expected to be announced by Wednesday, barring any surprises from rival bidders. HSBC, which until last week was seen as the front runner to buy the South Korean bank, is understood to have pulled out of the race.
Standard Chartered, which specialises in emerging markets, is understood to have agreed the terms of the deal in principle with Newbridge Capital, the US private equity group that controls 48.6 per cent of Korea First. The negotiations are thought to be in their final stage; and Robert Cohen, Korea First's chief executive, said last week that the winner of the auction would be announced this week. The sale of Newbridge's holding will trigger the disposal of the 51.4 per cent stake held by the South Korean government under an agreement made five years ago.
The acquisition will mark the biggest foreign investment in South Korea's finance industry and will put Standard Chartered head to head with its US rival Citigroup, the world's largest bank. Last April, Standard Chartered lost out to the US giant, which bought KorAm Bank, South Korea's sixth-biggest bank, for $2.7bn in the country's first foreign banking takeover.
Before Christmas, HSBC was thought to have bid $3.15bn for Korea First, the eighth-largest bank in South Korea. Yet it emerged that last week Standard Chartered, which had earlier indicated that it might pull out of the auction, made a higher last-minute offer that HSBC declined to match. Both lenders increased their initial offers after completing due diligence in mid-December.
If Standard Chartered is indeed named the winner in the fierce auction, HSBC will have failed in its third attempt to acquire a bank in South Korea, and its second attempt to buy Korea First. It could instead turn later this year to Korea Exchange Bank, the country's number five bank, as its next target.
Foreign lenders are anxious to tap into South Korea's consumer banking and wealth management markets, which are starting to recover from a consumer credit bust. Standard Chartered has made no secret of its intention to grow by acquisition in Asia, where it draws two-thirds of its profits. Last October, it finally managed to acquire an Indonesian bank, Permata, the country's sixth-largest bank, which it bought in partnership with the car retailer Astra.
Shares in Standard Chartered fell last week on fears the bank would require an equity fund raising to finance the Korea First acquisition. Analysts estimated that it could not raise more than $750m without endangering its credit rating. The bank is rumoured to have plans to pay $2bn with its own money and raise $1.35bn through bond issues and other borrowings.
The British-based bank entered the South Korean market in 1968 and chose to focus on corporate banking until last May, when it made its first foray into retail banking by opening a branch in Seoul. The bank is also pushing ahead in India, which it hopes will overtake Hong Kong as its largest market, and in China, where last month it received a licence to do yuan business in Beijing.
The British-based bank was also linked over the weekend with South Africa's second-biggest bank, First National Bank, worth about 43bn rand. South Africa is one of Standard Chartered's key markets where Mervyn Davies, the chief executive, has said he wants to make acquisitions. Barclays is currently in talks to acquire a controlling stake in South Africa's largest consumer bank Absa.
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