Irish Life and Belgium's Kredietbank are to pay $90 million (£60 million) for a 56 per cent stake in Hungary's third biggest bank, Kereskedelmi es Hitelbank (K&H). The consortium's bid for the bank was accepted yesterday by the Hungarian Privatisation and State Holding company, beating a rival bid from Bank of Ireland. Irish Life and Kredietbank are joint partners in the consortium and will equally share the cost of the investment.
K&H is Hungary's second largest commercial bank in terms of its share of the market and is the third largest in terms of asset size. Irish Life chief executive, Mr David Kingston, said he was "delighted" its bid was successful. The group, he stressed, will continue to seek opportunities in Ireland and overseas which will allow it to move into the broader financial services market. "This acquisition is very much in line with our long-term strategy to broaden the range of our financial services activities, to include retail banking," Mr Kingston said.
Meanwhile, Bank of Ireland is expected to continue to look at other opportunities in Hungary and Eastern and Central Europe, as part of its long-term expansion plans.
This is Irish Life's second acquisition in 18 months, following the purchase of Guarantee Reserve in Illinois in the US last year.
Irish Life's share of the latest investment will be met from its internal resources. Together with the Irish Life Kredietbank investment, K&H will also receive a subordinated bond loan of $30 million from the European Bank of Reconstruction and Development. The EBRD can convert this loan to shares in the company, giving it an entitlement of approximately 17 per cent of the bank's total shares.
If this happens, the Irish Life Kredietbank's stake in K&H will automatically fall to 48 per cent. But the consortium has been guaranteed first refusal of the ERBD's shares, if they move to sell them.
The ERBD has generally tended to take a five to seven year interest in newly privatised companies taking a return on their investment at that stage. Analysts believe it is likely it would pursue a similar strategy at K&H, which would leave Irish Life and Kredietbank with a majority shareholding for a number of years.
The total $90 million investment will include a substantial capital investment programme within the bank itself. This will be put in place almost immediately and will be aimed at improving the efficiency of the K&H banking operations. The funds will also be used to establish a life assurance business within the group.
K&H will be fully privatised by the end of the year, when the remaining additional shares will be placed on the Hungarian stock market.
The Irish Life Kredietbank bid for K&H included a comprehensive three year development plan for K&H which crucially involves building its banking business while also making it a competitor in the Hungarian life assurance sector.
"Irish Life will be bringing capital, know-how and expertise to K&H," Mr Kingston said. It is also attractive for the group as it offers it a foothold in the emerging Eastern and Central European market, a move which he believes will complement its existing areas of business.
"Our main markets have tended to be over capitalised, low margin environments. But Hungary is an emerging market that should show higher growth potential which will also be reflected in higher margins," he said.
Irish Life and Kredietbank have a long established relationship and each have shareholdings in the other company.
