KB Financial eyes $1 bln-$3 bln in new capital

The parent group of South Korea's largest bank Kookmin is seeking to raise up to $3 billion through a share sale by around the third quarter, a banking source said on Friday, as it prepares for a surge in bad loans and possible acquisitions.

KB Financial Group's (105560.KS) planned sale would come after Korean banks have already raised a combined 28 trillion won ($22.5 billion) through issues of new shares and equity-type securities over the past eight months to cushion their balance sheets that have been stung by the global economic slump.

But the rallies in their stock prices since March are making some of them consider raising new capital even for business growth.

KB (KB.N), the country's No. 3 financial services company, has asked six investment banks, including Credit Suisse (CSGN.VX), JPMorgan (JPM.N) and Bank of America-Merrill Lynch (BAC.N) to advise on the plan, the source and two other industry sources said.

"It will be a $1 billion to $3 billion deal," the source with direct knowledge of the plans told Reuters.

"It is a capital raising and is most likely a rights issue," he said, declining to be identified because of company policy.

The source added the planned issue would take place "this summer or in the third quarter".

KB said on Wednesday it might sell new shares to raise capital, heightening speculation that it would bid for smaller rival Korea Exchange Bank (KEB) (004940.KS). KB did not give any details. [ID:nSEO249141]

KEB is 51 percent owned by U.S. private equity firm Lone Star [LS.UL], a stake worth 3.2 trillion won ($2.6 billion) at current market prices. KB's initial deal in 2006 to buy KEB from Lone Star stumbled over a legal dispute.

KB said in April it will pursue acquisitions after the third quarter once markets stabilised, as it tries to boost its corporate and investment banking presence to balance its business portfolio, like rival Shinhan Financial Group (055550.KS) did.

KB spokesman Choi In-seok said on Friday a potential fund-raising would be aimed at shoring up its capital base as a cushion against bad loans, and also to ready for future M&A deals. He reiterated that the issue details have not been finalised.

Credit Suisse, JPMorgan and Bank of America-Merrill Lynch declined to comment.

Shares in KB Financial rose 2.4 percent to close at 41,250 won after volatile trading on hopes for M&A. The shares are up 59 percent from their March lows but still 15 percent off a 7-month high hit last month.

REASONABLE STRATEGY?

Surin Song, an analyst of Daishin Securities, estimates KB Financial would offer new shares at around 32,240 won apiece, or a 22 percent discount to Friday's close. That reflects an estimated 0.8 times book value of the stock.

Shinhan Financial raised 1.3 trillion won via a new share sale in March, at a discount of 25 percent.

Without a new share offering, KB Financial may be able to raise 2 trillion won through the sale of a 13 percent stake owned by Kookmin in it, based on current market prices.

To fund a potential acquisition of KEB and other non-banking companies at home, the group will need an additional 3 trillion won, analysts say.

"If we think about post-financial crisis, they would be very reasonable investments as a top-tier bank in South Korea," said Park Jung-hyun, a Hanwha Securities analyst, referring to KB's possible purchases.

The two unnamed industry sources said Citigroup (C.N), Samsung Securities (016360.KS) and Korea Investment & Securities were also picked to work on KB's new share sale. Officials from the three firms were not immediately available for comment. ($1=1246.2 Won) (Additional reporting by Shin Jieun; Editing by Jonathan Hopfner and Muralikumar Anantharaman)