President Chun Byong-jo of KB Securities.

KB Financial Group said on Dec. 30 that KB Securities, its affiliate, raised 180 billion won in new capital through the issuance of stocks. The move was made to help KB Securities have a large investment banking facility after it merges with Hyundai Securities under the new name KB Investment and Securities this month.

The capital increase brought the merged securities firm’s total capital to 4.10 trillion won at the end of last year. The new investment and securities firm created out of the merger of KB Securities and Hyundai Securities will officially complete the registration under the new name so that it can begin operation from Jan. 1, 2017.

KB Financial Group's decision to swap stocks with Hyundai Securities to merge with the latter has been a boon for both companies, as the stock prices of both are picking up. Last August, the group held a board meeting and decided to swap stocks with Hyundai Securities and buy back 500 billion won ($444 million) of the group’s own stocks.

During the meeting, the board set the swap rate at 1:0.1907312 after calculating the weighted arithmetic mean of the end price of one month, one week and recent sessions from Aug. 1.

This was part of moves to make Hyundai Securities a KB affiliate and merge with KB Investment & Securities. Last March, KB Financial Group became the major shareholder of Hyundai Securities after purchasing 53.38 million Hyundai Securities shares from Hyundai Merchant Marine and other shareholders.

And the board's decision raised the prices of both KB Financial Group and Hyundai Securities. The group's stocks ended at 35,200 won per share on Aug. 2 and rose by 6.11 percent to 37,350 won soon after. Hyundai's stocks also improved from 6,730 won on Aug. 2 to 7,070 won, up 5.05 percent. Initially, market observers anticipated that the group would buy Hyundai stakes after merging Hyundai and KB Investment & Securities. This was deemed unfavorable for Hyundai Securities’ minor shareholders because Hyundai Securities is a listed firm, while KB Securities is not.

The group, however, said that it came to the decision to swap stocks in order to protect minor shareholders, because the swap rate was based on their market prices, which have been adjusted in the market for a long time. Observers say that KB Financial Group’s decision to swap stocks allowed it to not only protect rights of those related but also accelerate its bid to include Hyundai Securities under its wing.

"Recent price-to-book value ratios of two companies showed that the swap rate seems fair considering opportunities for dividend investments and the possibility of improvement in performance," said Lee Chul-ho, an analyst at Korea Investment & Securities. "Not many Hyundai Securities shareholders will oppose the stock swap."

The group expects that the decision to buy back shares will likely offset any market concern over equity delusion stemming from KB Financial Group's issuance of new stocks as part of the stock swap. 

A view of the building in Seoul where KB Securities has offices.(Photos: KB Securities)