January 12, 2010 / 7:07 AM / 9 years ago

UPDATE 2-US Prudential to pick S.Korea units buyer soon -bidder

* Hanwha Securities confirms bid for Prudential units

* Hanwha shares down 8.6 pct on concern about capital raising

* Doubt about synergies from Prudential deal -analyst (Recasts with fund manager quotes; updates share price, adds byline)

By Kim Yeon-hee

SEOUL, Jan 12 (Reuters) - Prudential Financial Inc (PRU.N) is set to pick a buyer for its South Korean funds and brokerage units by February, in a deal estimated at up to $900 million that could pressure other struggling foreign financial firms to follow suit.

The prospective sale of the units by Prudential, the second-largest U.S. life insurer, underscores the difficulty global fund houses have faced in the country’s $300 billion asset management market.

Only a few international names, like Fidelity Investments and Schroders (SDR.L), have made headway with offshore funds in South Korea.

With tax breaks on offshore funds having been lifted this year and interest in risky assets cooling after the global credit crisis, foreign asset managers in South Korea face further challenges.

“A few foreign fund houses with strengths in commodities and global networks, such as BlackRock (BLK.N) and JPMorgan (JPM.N), have been doing well among foreign companies,” said Chang In-whan, chief executive of local fund house KTB Asset Management in Seoul.

“But in the onshore fund market, there has been little room for foreign companies to crack. Local companies have been ahead of foreign firms in terms of performance and management skills.”

Prudential has put both Prudential Asset Management and Prudential Investment & Securities up for sale, but it is unknown whether the two entities would be sold in a package or separately.

A Prudential official in Seoul said on Tuesday that four or five bidders appeared to be participating in the auction, including KB Financial Group (105560.KS) (KB.N), the parent company of top domestic bank Kookmin, and Hanwha Securities.

He declined to elaborate, saying the sale process was being handled in the United States.

Hanwha Securities (003530.KS), a medium-sized domestic brokerage, has submitted a bid for Prudential Investment & Securities and its fund management affiliate, a Hanwha official told Reuters, confirming market rumours.

“A preferred buyer will be picked either later this month or early February. We are doing a due diligence study now,” the Hanwha official said, asking not to be named as the procedure is not public.

Lotte Group, which had been tipped as a potential buyer of the Prudential assets, said it had not put in a bid.

A number of global fund houses have yet to build a strong presence in South Korea, in which 68 players compete.

Credit Suisse CSGN.VX pulled out of a fund management joint venture in South Korea last year. The South Korean units of Goldman Sachs (GS.N), JPMorgan and AllianceBernstein (AB.N), are among fund houses that posted a loss in the first half of last year ended September, according to the regulatory Financial Supervisory Service.


Securities companies in South Korea have been sought after, as brokerage firms have been given a larger scope of business under a new capital markets law introduced last year.

But Hanwha shares fell as much as 8.6 percent after it confirmed the bid, with analysts doubting the potential deal’s synergies.

It trimmed losses to be down 5.9 percent at 9,650 won by 0448 GMT, after the company denied market talk of a capital-raising to fund the possible deal in a disclosure to the Korea Exchange.

“Markets are not sure to what extent an acquisition would help Hanwha. Prudential Investment is not exactly doing well either,” said David Rhee, a Hyundai Securities analyst.

“If Hanwha had gone for a player that was doing very well in its niche, such as Kiwoom Securities (039490.KS) in online broking, its acquisition would have been viewed more positively. But with Prudential Investment, investors are not convinced.”

KB Financial, which reiterated in December that it wanted to expand in broking via an acquisition, declined to comment.

Prudential bought the two companies from the South Korean government for 355.5 billion won in 2004, making the U.S. insurer the largest foreign fund manager in the country at the time.

KTB Asset’s Chang said the U.S. company has focused on passive and bond portfolios to step up risk management. After the forthcoming sale, the U.S. insurer will be left with its life insurance business in South Korea.

The estimated value of the deal varies between 500 billion won and 1 trillion won ($445 million-$891 million), according to media reports.

Applying the valuation of about 2 times estimated book for South Korean brokerages, the possible sale would be worth 840 billion won, based on the unit’s net asset price at the end of July, 2009.

Deutsche Bank has been reported in the local media as advising Prudential on the sale. Deutsche could not immediately be reached for comment.

$1=1122.5 Won Additional reporting by Jungyoun Park and Rhee So-eui; Editing by Jonathan Hopfner and Muralikumar Anantharaman

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