Hanhwa’s Acquisition of Daehan Life Insurance Finally Determined

Daehan Life Insurance (DLI), which has guzzled up 3.55 trillion won (approximately $3 billion) of the public fund, will finally be sold to Hanwha Group (HG). This acquisition has brought the restructuring of the financial sector much advanced. The government has continued the restructuring after the economic crisis in 1998.

In the meanwhile, the HG, whose asset is worth 26 trillion won, will markedly pull up its status by this acquisition among the Chaebols.

On September 23, 2002, the Public Fund Management Commission held its main session and decided that it would sell the 51% of DLI’s shares, which Korean Deposit Insurance Corporation now retains, to the HG consortium.

The HG consortium has evaluated the value of the DLI at 1.615 trillion won, and, based on its evaluation, offered 823.6 billion won for the 51% shares.

The HG will pay 411.8 billion won of the total required for the acquisition when it takes over the DLI, and pay the rest in two years. It has also secured the right to acquire additional 16% of DLI’s shares after 5 years or when the DLI is made public, whichever comes first.

The HG will handle, on its own, any additional problems in the future such as tax evasion caused by DLI’s ex-chairman Choi Soon-young, or default on the loans DLI has made.

On the other hand, the DLI cannot financially support the HG and its affiliate corporations for the three years to come, and has to pull down by 2005 its asset-debt ratio to 200%. If the DLI fails to meet any of these conditions, the Insurance Corporation will buy back the 51% it is supposed to sell now. The Insurance Corporation also reserves the right to appoint 2 of the 7 directors (1 belonging to the Auditing Board).

In the HG consortium, the HG affiliate corporations such as Hanhwa Securities chipped in 60%, a Japanese corporation Oriks 33%, and an Australian bank 7%. Accordingly, the amount the HG has to pay upon acquisition amounts to 260 billion won.

The Commission, however, drew out its decision based not on a unanimous agreement, but on the majority votes. Thus, it is expected that a debate will follow concerning the eligibility of the acquirer and the price for selling the DLI. It is reported that three out of 8 members of the Commission voted against the decision.

In the fiscal year of 2001 (from April of 2001 to March of 2002), the DLI raked in about 9.4 trillion won from selling insurance policies, and recorded 868 billion worth of profits.

As of August of 2002, the DLI hires 5,645 directors and staff members, and 32,016 regular employees. It also owns the 63-story building in Yeouido Dong, Yongdungpo Gu, Seoul, and 66.3% of Shindong A Insurance Company’s shares.

Kwang-Hyun Kim Kwang-Am Cheon kkh@donga.com iam@donga.com