Delayed regulatory approval to hurt ratings of KEB, Hana: Moody's

SEOUL, May 16 (Yonhap) -- South Korean financial regulator's delay in permitting Hana Financial Group Inc.'s acquisition of Korea Exchange Bank (KEB) is likely to hurt the credit ratings of both companies due to increased uncertainties, Moody's Investors Service said Monday.
The Financial Services Commission (FSC) said last week it will indefinitely postpone its decision on whether Lone Star Funds is eligible to be the biggest shareholder in KEB. The regulator also announced that it will delay permission over Hana Financial's acquisition of KEB.
Lone Star struck a deal with Hana Financial last November to sell its 51.02 percent KEB stake to Hana Financial.
"The delay in regulatory approval is credit negative for both KEB and Hana Financial, as it increases the possibility of the deal falling apart," Choi Young-il, a Moody's senior analyst, said in a report.
Moody's has an "A1" deposit rating of Hana Financial's bank unit Hana Bank with a "stable" credit outlook while keeping an "A2" rating on KEB with a positive outlook.
Choi said due to the approval delay, Hana Financial could face increased shareholder uncertainties and has to deal with how to utilize the huge amount of 4.9 trillion won (US$4.5 billion) excess capital raised for the acquisition.
"Hana Financial would eventually need to deploy its surplus capital either by seeking alternative acquisitions or buying back its shares given the pressure from unhappy shareholders," the analysts said.
In early 2011, Hana Financial raised a total of 4.9 trillion won by getting dividends from its bank unit Hana Bank and selling equities and senior bonds. The raised funds are now sitting unutilized.
Even if the FSC eventually approves the Hana Financial-Lone Star deal, Hana Financial may be forced to pay a higher price later on for the controlling stake due to KEB's increased cash holdings, he said, citing KEB's earnings from sales of its equity stake in Hyundai Engineering and Construction Co. during the second quarter.
The delay is also credit negative for KEB as it is "robbing KEB of the opportunity to be acquired by a stronger financial group," according to the report.
Last week, the FSC decided to push back its decision over the Lone Star eligibility issue and Hana Financial's consolidation of KEB due to lingering legal controversies over Lone Star's 2003 below market price purchase of KEB's credit card unit.
The Supreme Court overturned in March a lower court's ruling that Yoo Hoi-won, the former head of Lone Star's Seoul branch, was not guilty of stock price manipulation designed to buy the credit card firm on the cheap. The card firm was bought by Lone Star and integrated into KEB.
The Supreme Court sent back the case for a retrial. The results aren't expected to come for many months.
The FSC said it will not make any decision before getting the final court ruling.
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