The acquisition of Pepper and Sangsangin Savings Bank, which is being pursued by OK Financial Group, is facing a crisis of being completely derailed. It is reported that Pepper Savings Bank's major shareholder will stop the sale, and negotiations for the acquisition of Sangsangin Savings Bank are also experiencing difficulties. There is a growing opinion in the industry that relaxation of savings bank merger and acquisition (M&A) regulations is necessary.
According to the savings bank and investment bank (IB) industries on the 22nd, the Australian Pepper Group is said to temporarily halt the sale of Pepper Savings Bank. OK Financial has been conducting due diligence since the 14th of last month in order to acquire Pepper Savings Bank.
An IB industry official said, “I understand that the M&A intentions from both sides have not been strong from the beginning.”
Analysts in the financial sector suggest that the low valuation due to sluggish business conditions has led to the halt in the sale of Pepper Savings Bank. The sale price of Pepper Savings Bank mentioned in the market is around 340 billion won, applying a price-to-book ratio (PBR) of 0.9 times to its equity capital of 379.5 billion won.
The likelihood of the actual sale price being set at 340 billion won is low. The total asset of Pepper Savings Bank decreased by 38.7% from 4.7188 trillion won the previous year to 2.8913 trillion won last year, and the arrears rate has reached 9.82%. There are prospects in the industry that price negotiations will proceed at a PBR of around 0.4 to 0.5 times.
The Pepper Group is estimated by the IB industry to have invested about 140 billion won in Pepper Savings Bank through acquisitions and capital increases. If the sale occurs at a PBR of around 0.4 to 0.5 times, it could incur losses for the major shareholder. It is reported that KKR, the private equity fund that is the major shareholder of Pepper Group, also deems that the current sale may not be beneficial. The fact that Pepper Savings Bank received a deferment of correction measures from the financial authorities is also seen as influencing the halt in the sale.
The acquisition of Sangsangin Savings Bank is also in a sluggish state. OK Financial has completed due diligence and is negotiating by suggesting an appropriate acquisition price since last February. However, both sides have failed to narrow differences over the sale price.
The market has projected the sale price of Sangsangin Savings Bank at around 200 billion won, based on a PBR of 0.9 times. However, it is reported that OK Financial has proposed a PBR of around 0.5 times. Negotiations are currently stalled due to disagreements over the sale price. The financial authorities recently issued management improvement recommendations corresponding to the first stage of timely correction measures for Sangsangin Savings Bank.
There are many opinions in the industry that the regulations on savings bank M&A need to be relaxed. Recently, the financial authorities decided to temporarily expand the scope of M&A approvals for savings banks for two years to revitalize them.
Currently, savings banks subject to restructuring are those that have received timely correction measures (including deferments) or whose financial conditions are clearly subject to timely correction based on inspection results. In the future, savings banks that fall below grade 4 in asset soundness in the quarterly management assessments over the last two years will also be included in the restructuring subject.
However, it has been pointed out in the industry that there are still limitations on voluntary M&A as the focus remains solely on troubled savings banks.