Shinhan Financial Group is moving forward with a plan to increase its common stock by approximately 300 billion won following its acquisition of Lotte Insurance. The funds, initially intended to cover losses at Shinhan EZ Insurance and for capital expansion, will now be redirected to Lotte Insurance in light of potential integration of the insurance subsidiaries. The group aims to leverage its capital support capabilities to address any additional capital burdens that may arise.
Jang Jeong-hoon, Chief Financial Officer of Shinhan Financial Group, stated during a conference call on October 27 regarding third-quarter results that the company is considering a capital increase of about 300 billion won for Lotte Insurance. He noted that if future capital requirements increase, other capital measures could also be explored.
This capital increase is significant as it aligns with the integration strategy following the acquisition of Lotte Insurance. Previously, Shinhan Financial had to inject separate capital into the consistently loss-making Shinhan EZ Insurance, but now it plans to pursue both capital expansion and profitability improvement in the insurance sector through the acquisition of Lotte Insurance.
Lotte Insurance currently has a negative basic capital adequacy ratio (K-ICS) and requires a capital structure improvement to comply with new basic capital regulations set to take effect next year. Shinhan Financial intends to resolve the capital increase issue, which had been a burden under the previous major shareholder system, through its capital support capabilities at the financial holding level.
Earlier, Shinhan Financial signed a stock purchase agreement (SPA) to acquire a 77.04% stake in Lotte Insurance from private equity firm JKL Partners for 693.3 billion won. The company plans to secure the remaining shares to fully integrate Lotte Insurance as a subsidiary. The total cost of the share acquisition is estimated to be around 900 billion won. Shinhan Financial estimates that the acquisition will reduce the group's common equity tier 1 (CET1) capital ratio by approximately 0.19 percentage points, with the CET1 ratio at 13.62% at the end of the third quarter.
Shinhan Financial believes that acquiring Lotte Insurance will also alleviate the burden of losses from its existing insurance operations. Shinhan EZ Insurance is projected to incur annual losses of about 40 billion to 50 billion won this year, and the company aims to utilize Lotte Insurance's operational foundation and achieve synergies upon integration to improve profitability.
Jang added, "We believe that the losses at Shinhan EZ Insurance can be significantly improved, and Lotte Insurance can also generate returns that meet investors' expectations in terms of return on equity (ROE) relative to the capital injection."
However, as regulatory approval processes for the acquisition remain, specific business plans will be presented after the acquisition is finalized. The scale of future capital increases and the improvement of profitability in insurance operations are expected to influence investment outcomes.
* This article has been translated by AI.
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