[Exclusive] Hanwha Life to Transition Indonesian Financial Subsidiaries to Holding Company Structure

Indonesian Financial Authorities Notify Hanwha Financial Group to "Establish Holding Company"
Asset Requirements Met Through Nobu Bank Acquisition... OJK Review Ahead
President Kim Dongwon Faces First Test of Holding Company Leadership on the Global Stage

Hanwha Financial Group, the financial arm of Hanwha Group, is transitioning to a holding company structure in Indonesia. This move comes as the group has expanded its presence in Indonesia, entering life insurance, non-life insurance, securities, asset management, and most recently, banking. While Hanwha Financial Group faces long-term challenges such as affiliate separation and conversion to a holding company in Korea, it is first experimenting with the holding company model overseas.

According to Asia Economy's confirmation with Indonesia's Financial Services Authority (OJK) on July 15, the OJK recently sent an official letter to Hanwha Group, providing guidance on follow-up measures related to the "Regulation on Financial Conglomerates and Financial Conglomerate Holding Companies," which was introduced at the end of last year. An OJK official explained, "This matter was also communicated to the compliance officer of Hanwha Life Indonesia, and we held related meetings with them."

The "Financial Conglomerate Regulation" in Indonesia, obtained via the OJK, stipulates that financial companies operating locally must establish a holding company if certain conditions are met. According to Article 2, Paragraphs 1 and 2 of Regulation No. 30, if a financial conglomerate has total assets of at least 100 trillion rupiah (approximately 8.5 trillion won) and owns financial institutions in at least two different sectors, it is required to establish a holding company. The same applies if the total assets are between 20 trillion rupiah (approximately 1.7 trillion won) and 100 trillion rupiah, provided the conglomerate owns financial institutions in at least three different sectors. If these criteria are met for more than six months, the obligation to establish a holding company is triggered. In such cases, the financial conglomerate must submit an application for holding company establishment to the OJK and complete the process within six months. The entire process, from meeting the criteria to establishing the holding company, must not exceed one year.

The OJK separately communicated the requirements related to financial conglomerate regulations to Hanwha Group because Hanwha Life was on the verge of acquiring management control of Nobu Bank, which was previously owned by Lippo Group, the sixth-largest conglomerate in Indonesia. In May last year, Hanwha Life became the first Korean insurer to pursue entry into the overseas banking sector by signing a stock purchase agreement (SPA) to acquire Nobu Bank. Immediately after informing Hanwha Group of the financial conglomerate regulations, the OJK gave final approval for the Nobu Bank acquisition on June 30. As of the end of last year, Nobu Bank's assets totaled 3 trillion won. Previously, the combined assets of Hanwha Financial Group's Indonesian subsidiaries did not meet the threshold for the financial conglomerate regulation, but with the acquisition of Nobu Bank, the obligation to establish a holding company was triggered.

Hanwha Financial Group has been laying the foundation in the Indonesian market for about 13 years. The journey began in 2012 when Hanwha Life acquired Multico Life, an Indonesian life insurer, and launched Hanwha Life Indonesia in October 2013. In March 2023, Hanwha Life Indonesia and Hanwha General Insurance entered the non-life insurance market by acquiring Lippo General Insurance from Lippo Group. In October last year, Hanwha Investment & Securities acquired Ciptadana Securities, a local brokerage, and this year is on the verge of final approval for the acquisition of Ciptadana Asset Management. Hanwha Financial Group has now become a global financial group in Indonesia, encompassing banking, insurance, securities, and asset management. While seeking to maximize synergy across these sectors, the group is now undergoing a transformation to a holding company structure as mandated by the financial authorities.

In accordance with the relevant regulations, Hanwha Financial Group is expected to complete the establishment of a holding company in Indonesia by next year. There are two main types of holding companies in Indonesia: "operating" and "non-operating." An operating holding company conducts its own financial business and manages or controls other financial companies within the group. A non-operating holding company, similar to those in Korea, does not engage in financial business itself and serves purely as a holding entity. In Hanwha Financial Group's case, the most likely scenario is that Hanwha Life, the largest entity, will establish a new financial holding company in Indonesia to oversee the other financial subsidiaries, or Hanwha Life Indonesia, which operates the life insurance business locally, will serve as the financial holding company and control the other subsidiaries. A senior official at Hanwha Financial Group stated, "If we receive an official notification from the OJK regarding the obligation to convert to a holding company, we will proceed according to the procedures," adding, "We are currently analyzing, together with a local law firm, which structure?operating or non-operating holding company?is more suitable."

This transition to a holding company is expected to be the first opportunity for Kim Dongwon, the second son of Hanwha Group Chairman Kim Seungyeon and President and Chief Global Officer (CGO) of Hanwha Life, to demonstrate his holding company leadership in an overseas market. Within Hanwha Group, there is a growing momentum for succession and holding company conversion, as Chairman Kim transferred half of Hanwha's shares, which serves as the group's holding company, to his three sons in March. If Hanwha adopts a holding company structure, Hanwha Financial Group must be completely separated from the group in accordance with the principle of separation between financial and industrial capital. If President Kim successfully demonstrates his holding company leadership overseas, his control will likely be further solidified when Hanwha Financial Group pursues an independent path following affiliate separation in Korea.