Nonghyup Enters LBO Market

Nonghyup loans $180 mil. to KKR in its $2.2 bil. LBO deal to take over First Data

Nonghyup(National Agricultural Cooperatives Federation) will be the first Korean financial institution ever to enter the LBO(leveraged buy out) market, the farmers cooperative bank said recently.
Nonghyup said it plans to provide loans totaling $180 million to Kolberg, Kravits and Roberts(KKR), a private equity fund in the U.S., which concluded a deal to buy 100 percent of First Data, the world's top electronics commercial dealer.
KKR, which is a fierce competitor to Blackstone, is slated to take over control of FD at the price of $2.4 billion and plans to borrow $2.2 billion to conclude the deal.
Nonghyup said the loan is not that big, but it is significant because it is the first such deal ever for a Korean financial institution. Korean financial institutions have been engaged in M&As as managers or investors, but in overseas LBO market and Nonghyup expects to continue to participate in the LBO deals managed by such world financial institutions as Credit Swiss, Citigroup, Goldman Sachs, Merrill Lynch, Lehman Brothers, HSBC, Deutsche Bank, and other famous world investment banks.
Nonghyup officials said the LBO deal is very sound because it is backed up by FD's assets and they are sure that interest earnings would amount to $40 million in the next 7 years thanks to the sound operation of FD.
Nonghyup will conclude the deal with Credit Swiss, the main manager of the transaction early next month and the loan will mature in seven years, they said. The loan will bear annual interest rate of Libor plus 2.75 percent or 8.4 percent per annum.
Other loan providers include GE, BNP-Parisbas Bank and ING Bank, among others.
Financial experts said when the FD transaction is completed, the demand for LBO market will be resurrected, helping the world financial market to resurge from the damage it got from the subprime loan market.
KKR was set up in 1976 and its value is estimated at $1.3 billion with assets managed totaling $53 billion. Its net income amounted to $4.4 billion in 2006 with an average annual profit rate of 20.2 percent.
FD's annual sales totaled $7.1 billion last year, with some 29,000 employees working for its units in 39 countries including Korea. The company set up its operations in Korea in 2005.
Nonghyup has been promoting its plan to set up operations overseas by buying stakes in small banks in China and Southeast Asia, Kang Myung-goo, executive vice president of Nonghyup said recently in an interview with a foreign news media.
"We are looking for strategic alliances with foreign banks as we try to expand our overseas business,"Kang said. He is in charge of asset management business for Nonghyup, totaling some $45.95 billion.
He went on to say that Nonghyup is thinking about buying stakes in foreign banks in Southeast Asian countries like Indonesia and China.
Nonghyup, in the meantime, said it has successfully issued foreign exchange bonds amounting to $500 million in London, repayable in 10 years. The bond carried Libor plus 39.5 bp annual interest rate, the lowest in recent years among any rates charged on subordinated bonds issued by Korean financial institutions in the financial market in London, Nonghyup said. The bond is also repayable after five years, if Nonghyup wants to, according to the terms and conditions for the bond issuance. Nonghyup said the bond will be used to increase its BIS ratio by 0.42 percent this year, from 12.34 percent at the end of last year.
Managers for the bond issuance included ABN Amro, BNP Paribas, Citigroup, and HSBC and the fund will be used by Nonghyup to make foreign exchange loans and fund for overseas investment, Nonghyup said.
Nonghyup has no overseas branches for financial operations, although it has more than $200 billion in assets.
Kang who also led Nonghyup's international financial team said the NACF also planned to expand investment in overseas assets such as property funds and hedge funds to 2.5 trillion won this year from 2 trillion won last year.
The executive vice president is particularly upbeat on Vietnam's property market which is experiencing a construction boom, and said Nonghyup has contacted builders and developers.
Vietnam is in an early stage of fast economic growth, so you can profit wherever you make investments, he boasted.
The National Agricultural Cooperative Federation (NACF) has a thriving banking department as active as commercial banks in the country, although it remains very much unnoticed by the public. Its total banking assets amounted to 148 trillion won as of the end of June, up 7.4 trillion won from the end of 2005. "The Banker,"an international magazine on banks, listed Nonghyup among the 90th largest financial institutions in the world at the end of 2005. Its assets are projected to jump to 155 trillion won at the end of last year. nw

President Chung Yong-keun of Nonghyup Credit Business Sector.