North Asia-focused private equity firm MBK Partners’ second attempt to exit Lotte Card Co., South Korea’s fifth-largest car issuer, is gathering steam as bidders line up for a deal that could reshape the local credit card market.
According to sources in the investment banking industry on Friday, MBK sent out teaser letters in early May to Korean financial holding firms and some overseas potential buyers to tap interest in Lotte Card.
The PE firm is expected to invite candidates to a preliminary bid in early or mid-June.
MBK acquired a 79.83% stake in Lotte Card in a consortium with Woori Bank for 1.38 trillion won ($986.1 million) in 2019. The card issuer’s value was estimated at 1.7 trillion won at that time.
MBK now holds 59.8% of Lotte Card through Korea Retail Card Holdings Inc., a special purpose company set up by the PE firm, while Woori Bank and Lotte Shopping Co. each hold 20%.
Since then, the seller has lowered its expectation for the price to the 2 trillion won level, according to sources.
BETTER CHANCE FOR THE SALE
Especially, MBK is reportedly prioritizing a timely sale of its stake in Lotte Card over the maximum return amid growing concerns over its fund management among limited partners since the filing of corporate rehabilitation for its wholly owned Homeplus, Korea’s leading hypermarket operator, in early March.
IB industry observers also anticipate a higher chance for approval from the country’s financial authorities for a local financial holding firm’s acquisition of Lotte Card as concerns over private equity firms’ management of their portfolio companies are high, particularly in the financial sector.
About two months after MBK’s unexpected filing for court protection of Homeplus, jitters over the financial soundness of Lotte Insurance Co., a non-life insurance firm under another local PE firm JKL Partners, have recently rattled the country’s capital market.
Such concerns are expected to make a legacy financial holding firm more appealing as the new owner of Lotte Card, said an official from a local financial holding firm.
POTENTIAL BUYERS
Lotte Card boasts 8.67 million cardholders as of the end of the first quarter this year, making it the country's fifth-largest behind rivals Shinhan Card Co. with 12.84 million, Samsung Card Co. with 11.78 million, Hyundai Card Co. with 11.41 million and KB Kookmin Card Co. with 11.34 million cardholders.
With Lotte Card under its wings, the country’s fourth-largest issuer KB Kookmin Card could rise to the country's No. 1, surpassing the current leader Shinhan Card.
Owning Lotte Card would also allow KB Financial Group Inc. to significantly widen its gap with Shinhan Financial Group Co. to become Korea’s unrivaled No. 1 financial holding firm.
For this reason, Shinhan Financial is also expected to consider snatching Lotte Card to ward off KB’s rise.
Lotte Card (Courtesy of Lotte Card) Woori Financial Group Inc., Korea’s fourth-largest financial services provider, is also expected to jump into the race if the asking price is set at a reasonable level, said industry observers.
Its banking unit, Woori Bank, already holds a 20% stake in Lotte Card, out of a total 79.83% stake jointly held with MBK via their consortium.
Hana Financial Group, Korea’s third-largest financial group but with a weak presence in Korea's non-banking financial market, is also floated as a potential buyer.
