NH Financial, the Only Major Financial Group Without a Real Estate Trust Company
Real Estate Market Downturn Causes Trust Company Performance Slump, Posing Both Opportunity and Risk
Mugunghwa Trust, ranked sixth among domestic real estate trust companies, is being mentioned as a merger and acquisition (M&A) market target, drawing market attention to NH Financial Group, the only major domestic financial holding company without a real estate trust company.
According to the investment banking industry on the 18th, Mugunghwa Trust is reportedly seeking potential buyers to sell the majority shareholder stake.
A senior official in the real estate industry said, "Although real estate trust companies do not earn as much money as before, NH, which is the only major financial holding company without a trust company, is worth paying attention to."
Among the top five domestic financial holding companies, KB (KB Real Estate Trust), Shinhan (Shinhan Asset Trust), Hana (Hana Asset Trust), and Woori (Woori Asset Trust) Financial Groups each have a real estate trust company as a subsidiary. NH Financial Group is the only one without a real estate trust company.
Five years ago, NH entered the real estate trust licensing process to discover new businesses as part of reducing dependence on banks. However, at that time, it failed to obtain approval, losing out to Shin Young Real Estate Trust, Korea Investment Real Estate Trust, and Daishin Asset Trust.
Real estate trust companies are closely related to banking operations. Large financial holding companies benefit from synergy effects by having trust companies, as they can lend funds through banks and simultaneously earn fee income. KB Financial and Hana Financial each had trust companies, while Shinhan Financial acquired Asia Trust, and Woori Financial acquired International Asset Trust, transforming them into affiliated real estate trust companies.
Industry insiders expect NH Financial to show interest and consider the trust company sale. However, due to recent instability in interest rates and the real estate market, as well as poor performance of trust companies, it is uncertain whether an actual transaction will take place.
Even leading real estate trust companies in the industry have seen their operating cash flows turn negative. Mugunghwa Trust's performance also showed a steep decline. As of the end of last year, operating profit was 16.4 billion KRW, a sharp 62% drop compared to 43 billion KRW the previous year. It recorded a net loss of 6 billion KRW due to turning into a deficit. This was analyzed as an effect of a significant decrease in land trust (development trust) orders, which are the core revenue source for real estate trust companies.
However, some opinions suggest that now, when the 'body value' of real estate trust companies has decreased, is the right time to buy. An industry official said, "Ultimately, finding a price agreement is key, but since the real estate market is not good, due diligence will not be easy. Still, those needing licenses will show interest."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
