The decision by state-run Korea Development Bank (KDB) to sell its subsidiary KDB Life Insurance to JC Partners after 10 years has created mixed feelings, with some market watchers questioning whether it was being offloaded at a giveaway price.

There is also some doubt that the buyer, a domestic private equity (PE) firm, will be able to normalize the under-performing company due to its sluggish earnings outlook.

JC Partners agreed on December 31 to buy a 92.7% stake in KDB Life for 200 billion won ($184 million). It will create a project fund worth 350 billion won ($321 million) through a stock purchase agreement (SPA), with 150 billion won injected to issue new shares, and Woori Bank and KDB paying 100 billion won each for old shares. Woori Bank will replace existing investors, including reinsurer Korean Re and Asiana Airlines.

The PE firm plans to raise an additional 200 billion won to boost KDB Life Insurance’s capital base, but this won’t be included in the SPA as it is non-binding. Some believe JC Partners will struggle to repay the 200 billion won debt because of market doubts over its plan to transform KDB Life into a “co-insurance” company, a form of reinsurance that permits insurers to transfer any outstanding risks to a reinsurer.

There are also questions over whether JC Partners will be able to distinguish KDB Life Insurance from its competitors, which might make it difficult to boost earnings.

KDB’s board of directors approved the agreement after deciding that offloading the company offered it the best prospects for returning to consistent growth.

“We made a difficult decision after a long discussion,” an official at KDB told thebell. “We thought it is the right thing to do to find KDB Life Insurance a new private owner to revive as a small but strong life insurer through a capital increase.”

However, some market insiders believe the firm is being sold at a giveaway price. KDB had valued the firm at 800 billion won until 2019, but lowered the price of old shares to 200 billion won in 2020. JC Partners was the only bidder for the insurer, with KDB having difficulty attracting investors even after selecting its preferred bidder.

KDB appears to have decided to sell the insurer because it hasn’t achieved a notable performance over the last 10 years. The development bank had to accept the offer by JC Partners, as there were no other options.

“We thought it won’t be helpful for KDB Life Insurance to remain as KDB’s subsidiary,” said the bank official. “We expect new general partner JC Partners to manage the insurer well by scouting a market expert.” (Reporting by Eun-sol Lee)