CASE STUDY – Choeun Savings Bank
Acquisition of Choeun Savings Bank in Korea
SC Lowy’s acquisition and rescue of a struggling savings bank in South Korea is another example of our ability to opportunistically invest capital where our strategic knowledge and presence allows us to add value. The acquisition of Choeun Savings Bank (old name – Shinmin Mutual Savings Bank) has allowed us to gain a valuable on-shore presence in South Korean banking that brings access to local financing markets and numerous new opportunities.
In mid-2013, we identified a rare opportunity when Shinmin Mutual Savings Bank was put up for sale after it fell into financial difficulties in the aftermath of the Korean savings bank crisis. Shinmin Bank was founded in 1972 and its main business was deposit-taking and commercial lending.
Foreign participation in Korea’s banking industry has historically been limited, yet SC Lowy was welcomed as a new and trusted player due to its reputation gained from its earlier involvement in Korea, namely the Debtor-in-Possession rescue financing to Korea Line Shipping, allowing it to avoid liquidation.
The Korea Line Shipping high profile debt restructuring demonstrated that SC Lowy’s goals as a financial institution were aligned with those of Korean society, in helping to save jobs and support business growth. It also helped SC Lowy successfully navigate a rigorous vetting process by Korean regulators, paving the way for it purchase of Shinmin Bank to be green-lighted. In October 2013, SC Lowy and private equity firm Yuli PE acquired 89% of Shinmin Bank from Samhwan Corporation, a listed Korean construction company.
This was a significant milestone because it placed SC Lowy among a select group of foreign entities who had received a banking license in Korea. This achievement is indicative of the trust built with regulators and demonstrated the value of our local knowledge and on-the-ground engagement.
Through ownership of a domestic bank, SC Lowy would now be able to transfer its technical banking expertise to provide a new platform for small and medium-sized companies in Korea to access funds, which were often difficult to find elsewhere.
Following the purchase the bank was renamed Choeun, the Korean word for “good.” SC Lowy co-founder and chief investment officer Soo Cheon Lee was appointed Managing Director of the bank and Sk. HoJun Lee of Yuli PE was appointed CEO. Choeun subsequently completed a KRW 16.5 billion rights issue in January 2014, which increased the total value of its equity capital to KRW 18.9 billion and lifted its Tier 1 capital ratio to 20%.
Under new management, the initial focus of Choeun has been to reduce losses in its mortgage finance business and strengthen risk-management processes and introduce global governance standards. The new strategy targets lending to small and medium-sized enterprises, with a particular emphasis on tightening management controls and developing global best practices.
The bank has significant growth potential. Choeun’s banking platform benefits from low funding costs that come from operating a deposit-taking franchise, while it also possesses a network of SME banking clients. Performance has also been improved by implementing best-in-class, risk-management techniques and pricing of risk to ensure strong credit quality.
SC Lowy was also careful to obtain buy-in of the acquisition from key stakeholders, including Choeun Bank’s employees. Hence, extensive negotiations with the employees’ union were conducted to ensure the acquisition enjoyed broad support.
In December 2014, Choeun Savings Bank completed the purchase of Golden Bridge Savings Bank further expanding its local presence.
“The Choeun transaction is a natural extension of SC Lowy’s business,” said Soo Cheon Lee, Chief Investment Officer and co-founder of SC Lowy. “We intend to capitalize on the significant opportunities that will result from an on-shore presence.”