On August 31, the financial regulator in Taiwan announced that loss-making Cosmos Bank will be sold to hedge fund, SAC Private Capital Group, and General Electric for $900 million.
The investors will subscribe to new shares at NT$2 ($.06) per share. The price, which represents more than a 60% discount to the recent traded price, disappointed shareholders and sent Cosmos shares down by 7%.
The owners of Cosmos were facing an impending deadline to sell the bank to an investor who would recapitalise the bank. Cosmos is loss-making due to defaults on its consumer credit loans. It had a net loss of NT$11.3 billion for calendar 2006 and its book value is currently negative.
SAC will invest $650 million and GE $250 million to own jointly a final stake of around 80% in Cosmos. The investment will be structured through a combination of equity shares and convertible bonds.
At various stages during the Morgan Stanley-led auction, Bain Capital, Shin Kong Financial and some local Taiwanese businessmen were reported to have been interested in Cosmos. Cosmos was started in 1992 and currently has a network of 63 branches.
GE is already a 10% shareholder, via a stake it acquired in 2006.
SAC Capital Advisors is a group of hedge funds founded by Steven Cohen. The funds under management are reported to include CohenÆs own wealth as well as externally raised money. SAC forayed into private equity quite recently via SAC Private Capital Group.
Taiwan has seen a spate of both strategic and financial investments in the banking sector recently. The country is over-banked and consolidation has been widely predicted as the only way to bail out the debt-ridden banks.
In July, a Carlyle-led consortium invested $657 million in Ta Chong Bank to acquire 35% and become its largest single shareholder. This followed Longreach Group's announcement in June that it would spend $694 million to acquire 51% of EnTie Commercial Bank. EnTie was also loss-making. Standard Chartered and Citi both acquired Taiwanese banks in the last 12 months.
Meanwhile, in South Korea, Woori Financial Group has announced that it has acquired 51.5% in the leasing and instalment-finance firm, Hanmi Capital, from MBK Partners for W271.1 billion ($288.6 million).
Woori had confirmed in an NYSE filing on August 24 that it was interested in Hanmi. The acquisition strengthens WooriÆs position in non-banking financial services and helps the company expand into consumer banking.
The Woori group includes Woori Bank, KoreaÆs second largest commercial bank, two regional banks (Kwangju Bank and Kyongnam Bank), Woori Investment & Securities, and other financial services businesses. As of March 31, 2007, the groupÆs total assets and shareholdersÆ equity stood at W251 trillion and W11.9 trillion, respectively.
Hanmi was one of the first investments announced by MBK in July 2006, simultaneously with its announcement of the close of MBKÆs first buyout fund aggregating $1.56 billion. MBK paid Citibank Korea $92.7 million for equity and convertible bonds in Hanmi.
Private equity firm, MBK Partners, was founded by five ex-Carlyle executives led by Michael Kim, who headed CarlyleÆs Asia practice. In a short period of time, the firm has earned a reputation for being a savvy investor and the Hanmi selldown, on which MBK posts a healthy profit on an investment it has held for just over a year, is set to reinforce its standing in the region.
Analysts were generally positive about WooriÆs move, saying it was synergetic for both the acquirer and target, even though the deal priced higher than speculation a few weeks ago. On the NYSE, Woori Finance closed Friday at $69.35, up 3.15%.
The financial services sector across Asia presents numerous opportunities for takeovers as there is a proliferation of small- and medium-sized players who may be uneconomic is today's changed environment. For their part, both financial sponsors and global banks are keen acquirers as Asia represents a high-growth market for the future. The regionÆs two largest economies, China and India still carry restrictions on foreign ownership and bank M&A. With those set for relaxation in coming years, and private equity funds awash in liquidity, activity in this sector seems set to continue to grow.