Chairman Lee Dong-gull of Korea Development Bank.(Photo: KDB)

South Korean state lenders will put up 5 trillion won ($4.1 billion) in a government-sponsored fund to finance mergers and acquisitions to raise competitiveness and resilience of Korea Inc. against outside risk factors, such as trade barriers from Japan.

The Financial Services Commission is arranging an M&A-devoted council with three state lenders - Korea Development Bank, The Export-Import Bank of Korea and Industrial Bank of Korea - to back M&As that can achieve economies of scale and global competitiveness for Korean enterprises.

IBK and Korea Eximbank will shell out 1 trillion won and 1.5 trillion won, respectively, for M&A financing and KDB will do 2.5 trillion won for business competitiveness. The council will invite global investment banks to facilitate the deals. Priority will be given to companies seeking to enhance capabilities in materials, components and equipment, Korea’s weak spot exposed via the latest export curbs from Japan.

The funding plan is a part of the government measures against Japan’s export restrictions on dual-purpose items and technologies bound for Korea by stripping the nation of preferred white list status. Over 1,100 items falling under strategic and sensitive categories may have to be individually approved whenever they are shipped out to Korea, a process that could be delayed for months and disrupt production in Korea which heavily relies on Japanese supplies for mainstay exports.

The funding will first go to companies newly venturing into the materials and equipment segment and need M&As to start business. In such cases, up to 10 percent deductions in corporate income tax will be allowed until the end of 2022.
The Korea Development Bank is seeking to acquire Indonesian financial companies to boost its presence in the Southeast Asian market, a source said Aug. 7.

It is said to be targeting companies that have a license to offer a range of services from leasing and consumer financing to credit card financing in the region.

The state-run policy bank has retained Deloitte Korea as its adviser to list potential targets there for acquisitions.
This is also part of KDB’s efforts to look beyond Korea’s crowded financial market where commercial and policy banks are facing difficulties in generating positive cash flow amid low interest rates.

“The consulting process has been completed. The policy bank is currently reviewing its adviser’s suggestions.” a KDB official said. “We do not yet have any plans to announce what we are going to do at this point.” The KDB is considered to be a latecomer in the Southeast Asian financial market. Apart from its office in Hong Kong, KDB operates offices in Bangkok, Ho Chi Minh City, Yangon and Manila. It set up an office in Indonesia in February.

“The bank could acquire a local lender in Indonesia, but it looks keen on trying to take over a financial company that offers a wide range of services.” an industry source said.

“It is difficult to acquire a commercial bank there due to regulations. KDB will also need a certain amount of capital before acquiring a bank there. But there are less regulations in acquiring such financial companies. Prices aren’t very high either.”
Indonesian multi-finance companies mostly offer loans to retail and corporate customers with difficulties in securing capital from commercial banks there.

The country’s largest multi-finance company ADSF accounts for only an 8 percent market share, according to an industry source. The state-run bank’s advance into the country is also in line with the Moon Jae-in administration’s aim to boost economic ties with the region.

Indonesia’s Financial Services Authority has relaxed regulations enabling local multi-finance companies to boost their retail and corporate loan services, as well as their participation in infrastructure projects.