(Adds analyst comment, background)
By Michael Flaherty
HONG KONG, Sept 17 (Reuters) - Hanwha Group has hired investment bank JPMorgan (JPM.N) to sell a 9.9 percent stake in its Korea Life insurance unit, sources said on Wednesday, in a deal that could value the firm at more than $7.5 billion.
Affinity Equity, Carlyle Group and MBK Partners are among several private equity firms interested in the stake, three sources with direct knowledge of the deal told Reuters. Hanwha is targeting $500 million to $750 million from foreign investors.
Hanwha has previously set out plans to publicly list the life insurance company. A minority stake sale to a foreign investor would not only help give Korea Life a pre-IPO valuation, but would raise cash for Hanwha's bid for a stake in Daewoo Shipbuilding & Marine Engineering (042660.KS).
The Daewoo Shipbuilding deal is expected to fetch up to $8 billion. Hanwha's ability to finance a bid is seen as relatively weak compared to its rivals.
"We don't have a firm plan for such a deal yet," Ju Cheol-beom, a Hanwha Group spokesman, said, referring to the Korea Life stake sale.
But sources involved in the process said that private equity firms are already poring over bid-related documents in an auction that will likely kick off in the next couple of weeks.
So far, the process has focused on foreign private equity firms because of the size of the stake on offer. A more than $500 million cheque would fit well with the kind of cash big buyout firms are willing to pay in Asia.
"The $500 million to $750 million looks reasonable, indicating 1.4-2 times its book value--about average for large-size South Korean life insurance companies," said Lee Chul-ho, a Korea Investment & Securities analyst.
"Based on the suggested PBR (price to book ratio), it would not be a bad deal for a buyer."
With financing markets hit by the deepening global credit crunch, a private equity firm would probably have to pay all cash for a Korea Life stake.
That is something private equity firms are reluctant to do, but finding big-ticket deals in Asia with strong growth prospects is something major private equity players are struggling with.
The Korea Life deal has other complications. The process is in part driven by Hanwha's desire to win the Daewoo Shipbuilding auction, a feat hardly a guarantee given the competition.
It is also a minority stake, which raises the question of how much influence an investor will have on the business.
Should the sale succeed, two sources said that Korea Life may consider auctioning off another 9.9 percent stake to another foreign investor.
South Korean private equity firm Vogo Fund owns a roughly 20 percent stake in unlisted Tong Yang Life Insurance, the country's 10th-biggest life insurer by revenues, which plans a second-half IPO.
Affinity, an Asia focused private equity fund, has a successful track record in South Korea. It was among the investors that bought South Korean electronics chain Hi-Mart in 2005 for $833 million, which later sold for more than $2 billion.
Carlyle Group has a long standing presence in Asia, and has invested in the insurance sector in the region before.
Seoul-based MBK Partners, founded by a former Carlyle member, has investments in three South Korean companies, according to its website.
The three are among the firms interested in the Korea Life stake, the sources said.
Carlyle and JPMorgan declined to comment. Affinity and MBK did not return calls seeking comment.
Conglomerate Hanwha Group said last month it had cleared all hurdles to the Korea Life IPO after the insurance company cleaned up accumulated losses as the end of April, adding that it would kick off the offering process as soon as possible.
Additional reporting by Kim Yeon-hee and Rhee So-eui in Seoul, Editing by Jonathan Hopfner & Kim Coghill