Taiwan's Fubon Financial Holdings intends to create synergy with the business it is acquiring from Hyundai Life Insurance (HLI), but it will have to do so for a hefty price.

Fubon is buying a 48% stake in Hyundai where the companies can collaborate in building an auto insurance business in China as well as explore overseas credit card venture opportunities. The Taiwanese firm is buying a 48% stake in HLI for NT$6.12 billion (US$204 million).

Fubon is acquiring a 37 million shares issued by HLI at a cost of 5.945 won (US$5.38) per share. Hyundai Group will retain a 50% ownership in HLI at the deal's conclusion. The deal will allow Fubon Group to continue building its Asian footprint.

The Taiwanese firm established its first affiliate in Vietnam, Fubon Insurance (Vietnam), in 2011. In the same year, it worked with China's Founder Securities to form the first China-Taiwan asset management joint venture, Founder Fubon Fund Management.

Is it a good deal?

Dexter Hsu, an analyst at equity research, Macquarie Capital Securities (Taiwan Branch) says the deal is expensive.

"The price paid by Fubon is equivalent to 1.2x price-to-book ratio (PBR) or 1.1x PBR (post Fubon's capital injection), which is higher than where most Korea life insurers are trading now (i.e. 0.7x-1.0x). Though this is closer to 1x PBR paid by Anbang Insurance for a controlling 57.5% stake in Tongyang Life in February 2015, Fubon can only get a 48% stake, or five out of 11 board seats, which doesn't make a controlling stake (unless Hyundai Motor will exit the business in the future)," he adds.

Hsu also pointed out that Hyundai Life has been losing cash, something that Fubon can recover from in a few years. "Hyundai Life reported a loss of 86 billion won in 2014, from 32 billion won in 2013, as it still suffers from negative spread issues and loading losses. With 4% investment return delivered by Hyundai Life now, Fubon management believes it can help Hyundai Life to enhance its investment returns and reach the break-even point in 2016," notes Hsu.

Lily Hsiao, an analyst for SinoPac Securities Investment Service, believes that the deal could help build Fubon's property and casualty business. "Any further cooperation with Hyundai Group in developing China's auto insurance market would bring significant driver for Fubon's P&C business which I think would be the main reason behind this deal instead of trying to enter the Korea's insurance market," said Hsiao.

Fubon is not the first Taiwanese institution to begin acquiring stakes and companies in South Korea. KGI bought a Korean broker in 2000, but sold it in 2007, and Yuanta also bought Tongyang Securities in 2014.