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South Korea’s KB Financial Group continues to issue contingent capital securities subject to write-down this year, aiming to improve its double leverage ratio and strengthen investment capacity.

The financial group is set to issue on Friday hybrid bonds worth of 269 billion won ($225 million), which consists of 209 billion won callable in five years (3.57%) and 60 billion won callable in 10 years (3.8%).

KB Financial Group has continued to sell hybrid bonds and subordinated bonds since last year, totaling 2.84 trillion won including the latest issuance.

KB Financial Group last year injected a large amount of money into its acquisition of Prudential Life Insurance Company of Korea. It financed most of the acquisition cost in the primary market, raising 400 billion won through an issuance of a subordinated bond and 800 billion won through a hybrid bond.

At the time it raised 240 billion won from US private equity firm Carlyle Group, which invested in an exchangeable bond issued by the financial services company, and also received interim dividends from its subsidiaries.

This has pushed up the group’s double leverage ratio, calculated as investment in subsidiaries divided by total equity, to 129.04% as of the end of September, immediately after the acquisition of Prudential. The country's financial authorities recommend domestic financial holding companies to keep their double leverage ratio lower than 130%.

KB Financial group has issued a hybrid bond totaling a 1.14 trillion won so far this year after it sold a 500 billion won hybrid bond in October 2020. The group will be able to further lower its double leverage ratio after the latest issuance, with the ratio standing at 118% as of June.

The financial group already has solid capital adequacy, with its BIS capital adequacy ratio standing at 16.07% as of June. KB Financial Group expects the ratio to rise to 16.17% after the latest issuance of a hybrid bond.

KB Financial Group issued hybrid bonds and subordinated bonds totaling 2.85 trillion won over the last two years, while Hana Financial Group and Woori Financial Group issued the bonds worth 1.91 trillion won and 1.32 trillion won, respectively. Shinhan Financial Group sold the bonds worth 1.05 trillion won during the same period.

Market experts said KB Financial Group is securing money in advance for a possible large-sized mergers and acquisitions (M&A). The financial group has secured more than 1 trillion won in liquid capital by actively issuing hybrid bonds, and it seems to bear possible M&As in mind, according to multiple industry sources.

Its low debt-to-equity ratio also heightens the possibility of carrying out large-scale M&As whenever it wants to. KB Financial Group’s debt-to-equity ratio was 29.21% as of June, lower than its rivals Shinhan Financial with 38.68% and Hana Financial with 36.38%.

The financial group is likely to carry out M&As, aiming to reinforce its existing portfolio. The group has strengthened its competitiveness in the life insurance sector by acquiring Prudential, which is the seventh largest life insurer, while holding KB Life, the 17th largest life insurer by asset size.

“The issuance of a hybrid bond has been done to preemptively increase capital in preparation for possible inorganic growth in the future,” said an official at KB Financial Group. (Reporting by Jang-jun Lee)