American-based private equity firm TPG Capital has agreed to invest 250 billion won ($221 million) in Kakao Bank as part of a shares issue in a deal that values the South Korean online-only bank at 8.58 trillion won ($7.6 billion).

Kakao Bank, an affiliate of Kakao Group, decided to issue 31,916,595 new common shares for 23,500 won each at a board meeting on Tuesday (October 27). TPG Capital will acquire 10.64 million shares for a 2.68% stake in the bank, while the remainder will be purchased by existing shareholders, including Kakao Corp and Korea Investment Holdings Group.

It is the latest in a string of investments by foreign private equity funds in South Korean financial services firms. The Carlyle Group invested 240 billion won in KB Financial Group in June, and Baring Private Equity Asia and Affinity Equity Partners  together injected 1.16 trillion won into Shinhan Financial Group in September. Global private equity investors consider these firms to be undervalued in view of their growth potential, industry watchers said.

Discussions on the deal between TPG Capital and Kakao Bank reportedly started last year. Sources said TPG is upbeat about the bank’s growth prospects and role as an industry disruptor as the Covid-19 pandemic accelerates the shift to online banking.

The issue price of the new shares, about 4.93 times the bank’s book value per share at the end of June, has brought Kakao Bank’s equity value to 8.58 trillion won, comparable to market capitalizations of major financial services holding companies such as Hana Financial Group and Woori Financial Group.

Ant Group’s closely-watched initial public offering (IPO) has also had an impact on the valuation of Kakao Bank, industry watchers said. The Chinese financial tech giant’s successful listing on the Hong Kong and Shanghai stock exchanges in November could give a lift to Kakao Bank, which is preparing for its own IPO on the Seoul stock exchange next year.

The partnership between TPG Capital and Kakao Group started in 2017 when TPG invested 500 billion won in Kakao Mobility. It held a 17.92% stake in Kakao Mobility at the end of 2019. (Reporting by Hee-yeon Han and Se-hun Jo)

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