SINGAPORE: Reports from South Korea said DBS Group is forming a consortium to buy the Korea Exchange Bank (KEB).

This would be the bank's second shot at the Korean bank.

KEB's controlling stakeholder Lone Star Funds is said to have reacted positively to DBS' plans.

But analysts said the deal would still have to pass regulatory hurdles, which may be daunting.

Last year, DBS submitted a bid for KEB but eventually dropped out of the race after the Korean government classified Temasek Holdings as a non-financial institution.

Temasek has a 28 percent stake in DBS.

This time round, DBS is said to be working to form a consortium with a South Korean bank to circumvent that problem.

But analysts said the issue can still present quite a challenge.

David Lum, Regional Head of Banking, Daiwa Institute of Research, said: "DBS is still owned by Temasek. Temasek might not be perceived outside Singapore as totally independent from the Singapore government.

"So foreign regulators would thoroughly examine any application that a Temasek or Temasek-linked company might have, especially if DBS is indeed bidding for one of the major banks of Korea."

KEB is back on the market because plans by Lone Star to sell its stake to Kookmin Bank were scuppered after the government disputed the legitimacy of Lone Star's acquisition of KEB following the Asian financial crisis.

Lone Star, a US-based private equity fund, owns 64 percent of KEB.

While DBS might be interested, analysts pointed out that Kookmin Bank could still throw its hat back into the ring.

Mr Lum said: "I think that DBS might be exploring all of its options, assuming that the news reports are true. I think in the past they have always told the market that the bank wants to be very disciplined in its approach.

"It wants to acquire a major stake in one of the major banks in Asia. And Korea probably fits that category. But still, they would have to go through the due diligence that minimises a lot of the political risks in going into a market like Korea."

DBS has declined to comment on any speculation about its merger and acquisition activity.

Its shares took a knock on Wednesday – down 3 percent – in line with the overall market weakness on worries over geo-political tensions in the Middle East and the US economy.


- CNA/so