Regarding Competitiveness & Globalization:

The FSC Chairman said that Korean financial institutions must focus their capabilities in developing their distinct characters.

“South Korean commercial banks are competing in the domestic market without differentiated strategies. He advised the banking industry to arm themselves with unique capabilities and use them as leverage to explore the global market.”

Globalization, another pillar in advancing the industry, Chin told the industry to target Asia first before expanding into the global market. Chin cited Spain’s Banco Santander’s successful launch into Latin America market by exploiting their similar cultural backgrounds.

Regarding Woori Bank:

Chin said privatization of Woori Bank will begin in the second half of the year after reviewing the plan in the first quarter.

The issue remains at the heart of the South Korean banking industry’s Big Bang (deregulation).

The best option is putting up government-owned stakes in the bank on the market, but a merger is another alternative if market conditions are not as sound.

The public fund management committee will reach a conclusion in the first half after analyzing the strength and weaknesses of all measures.

See here for more information regarding the privatization of Woori Bank.

Regarding Corporate Governance:

In terms of the latest issue surrounding the corporate governance of the banking industry, FSC is mulling over measures to set up a department on corporate governance that can overlook and supervise corporate governance of domestic banks, equity and insurance firms.

For more information on the deregulation of Korea’s financial industry click here.

(Source: Maeil Business)

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The unsourced report claimed that it is expected that the government may sell the two South Korean lenders before it initiates the plan to merge Woori Finance with any financial firm.

The report explained that such a sale plan could emerge in order for Woori to reduce its assets before its potential merger.

Woori has estimated the value of Kyongnam Bank and Kwangju Bank at KRW 2tn (USD 1.71bn) and KRW 1.5tn (USD 1.28bn) respectively.

The listed South Korean peers of these firms, such as Daegu Bank and Pusan Bank, and an unlisted brokerage, Korea Investment Securities, have been mentioned as potential bidders for the banks, the report added.

Woori, in which the South Korean government has a 65.97% stake through the Korea Deposit Insurance Company, was earlier reported to be likely to merge with another financial company before the government divests its stake in it.

For more information and links to previous stories see  ’Woori Privatization Update: KB Financial possible merger candidate‘.

The Korea Economic Daily article can be viewed here (Korean).

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South Korean KB Financial was mentioned as a merger candidate for the privatisation of peer Woori Finance, reported the Korea Economic Daily here (Korean).

The report, which cited industry sources, claimed the possibility and said that the to-be merged entity would be 50th large bank in terms of its asset. See ‘Korean Gov. committed to financial deregulation‘ for more information on Korea’s financial industry.

Meanwhile, Shinhan, another South Korean financial holding company, would unlikely be merged with Woori. The report, which did not cite any source for this piece of information, claimed Shinhan had expressed several times that it has no intention to merge with local companies.

Woori, in which the South Korean government has a 65.97% stake through Korea Deposit Insurance Company, was earlier reported likely to merge with another financial company before the government divests its stake (Update: Woori Finance’s Privatization).

Hana Financial was also mentioned as a potential merger candidate, according to an earlier report, see ‘Update: Possible Hana-Woori merger‘.

(Source: Korea Economic Daily)

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The government reaffirmed their deregulation stance, at a forum in Seoul where government officials, private economists and CEOs discussed future strategies for the nation’s financial industry, according to this Korean article in the Korea Economic Daily.     

According to the report, doubts had been cast over consolidation and restructuring of the banking sector in South Korea, after recent changes in countries like the US, had led to apprehensions over the restructuring of local banks, like Woori Finance, which is about to be privatised (see Update: Woori Finance’s Privatization).   

Another report in the paper cited an unnamed insider at the Financial Services Commission as saying that given the size of the South Korean economy, there were still too many small banks, whose efficiency could be boosted by M&A.    

The Korea Economic Daily also provided two interesting graphs (translated below), that back up the belief that Korea’s financial sector is underveloped, and could gain dramatically from consolidation.    

(Source: Korea Economic Daily)

(Source: Korea Economic Daily)

 Also covering the event was the Korea Herald article – ‘Seoul to continue financial deregulation‘.

“If we indiscriminately tighten all regulations including a market entry ban or a sales restriction just as advanced nations do, it could hurt the growth of the local financial industry,” said Kwak Seung-jun, chairman of the Presidential Council for Future and Vision.  

Liking the status of the Korean financial industry’s autonomy to being at an “elementary school level,” Kwak said a financial deregulation would help the industry leap into “a junior-high school level.”  

While the government eases regulations, the regulator should make sure to enhance supervision, he added. Kwak’s view was shared by Chin Dong-soo, chairman of the Financial Services Commission.  

Chin said U.S. President Barack Obama’s recent proposed plan to curb the banking sector’s risky activities would be ill-suited if applied to Korea, given the small size of the market.

“It is not appropriate to apply global trends directly to the Korean case because the Korean financial sector has different characteristics from those in advanced countries,” Chin said.  

“Korea should sweepingly improve the structural weakness which was exposed by the latest financial crisis, while encouraging a continued growth of finance,” he said.      

Finance Minister Yoon Jeung-hyun said the government will raise its ability to counter a systemic risk and prevent a recurrence of a financial crisis by tackling debt problems and stabilizing the foreign exchange market.

 ”We need to enhance our crisis management ability by closely monitoring the macroeconomic supervision system and the early alert system,” Yoon said.    

“To make sure that debt problems do not hurt economic recovery, we will push corporate restructuring and help the financial sector clean up bad debts as soon as possible,” he said.      

In a discussion of how to redesign the global financial system to strengthen the industry’s competitiveness, Deputy Finance Minister Shin Je-yoon said the current global financial system faces “a flood of regulations,” saying many countries are announcing too many initiatives to strengthen regulations. Korea will carefully review which to adopt and which not to, he said.     

For previous stories on Korea’s financial deregulation and/or consolidation see here.    

(Sources: Korea Economic Daily, Korea Herald)

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Over the weekend the Korea Herald summarized some of the major M&A deals due to be completed in 2010.

Hynix Semiconductor

• Shareholders have restarted the sale process, and will receive LOI up to the end of January.
• Hyosung, the the sole bidder pulled out of the process earlier this month.
• Experts put the value of the stake up for sale at around $3 billion.

Once the Hynix sale is complete, KEB is expected to start the sale of Hyundai Engineering & Construction, in which it is also a major shareholder.

Daewoo Shipbuilding & Marine Engineering Co.

• Daewoo Shipbuilding, the world’s third-largest shipbuilder, is expected to be on the market early next year after Hanwha Group withdrew its bid in January.
• KDB and state-run Korea Asset Management Corp. hold a combined 50.4 percent stake.

Daewoo Engineering & Construction Co.

• Kumho Asiana Group is currently mulling over the selection of a preferred bidder for a controlling stake.
• Two foreign firms and a Middle Eastern fund submitted bids for the stake, which analysts estimated at around 3 trillion won ($2.5 billion).

Daewoo International

• The sale of a 68.8 percent stake inis expected to start in January, with steelmaker POSCO preparing a bid.

Korea Exchange Bank (KEB)

• Lone Star is seeking to sell its 51 percent stake, which could fetch as much as KRW 6 trillion.

Woori Financial Group

• The government plans to speed up the privatization of its 66 percent stake in Woori Finance, which it controls through the state-run Korea Deposit Insurance Corp.
• The KDIC recently sold a 7 percent stake in the group through a block trade, and plans to unload more shares until it holds only a controlling 50 percent stake plus one share.

Not included in the article but as earlier reported here, Daewoo Electronics is also up for sale.

(Source & Graphic: The Korea Herald)

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The JoongAng Daily reported on Friday (Dec. 18) -

“Although we expect the sale of Daewoo Engineering to go smoothly, KDB, as a main creditor bank, is mulling a ‘plan B’ to prepare for the possible failure of the sale,” KDB Financial Group Chairman Euoo-Sung Min told reporters.

Min said Kumho Group is carefully selecting a final bidder and that KDB is willing to provide financial support to any investor genuinely committed to buying the builder.

Recapping -

• Kumho Asiana Group picked two foreign funds – Jabez Partners and TR America Consortium – as preferred bidders for a controlling stake in Daewoo E&C.
• To help it sell Daewoo, the group asked 18 financial investors to hold off on exercising their right to force Kumho to buy their Daewoo stakes until Jan. 15.

Gov’t to sell Daewoo International by June

The Korea Herald reported Friday (Dec.18) that according to the FSC, Korea’s financial watchdog (pictured), the government will seek to wrap up the sale of Daewoo International Corp. in the first half of next year.

• Creditors of Daewoo International, led by the state-run debt clearer Korea Asset Management Corp., are looking to sell a 68% stake in the company valued at around KRW 2.2 trillion (US$1.87 billion).
• POSCO, South Korea’s leading steelmaker, has expressed its interest in bidding on Daewoo International.

Woori Privatization Mulled via M&A

The Korea Times took a break from the important issues (see ‘Korean Dramas Fail to Appeal to Chinese Men‘ and ‘Girls’ Generation Diet‘) to discuss the possible privatisation of Woori Financial through M&A, based on a report from Financial Services Commission (FSC).

The article states that M&A may be the prefered option to privatise Woori Financial as it will be difficult to find a buyer due to the size of the deal (estimated to be around KRW 7 trillion for the 50% stake).

“A merger would enhance its value and make a sell-off easier,” said FSC Chairman Dong-soo Chin.

If Woori merges with another financial holding company, such as KB or Shinhan Financial,  by swapping shares and setting up a new financial holding company, the government’s stake would be reduced.

However, Byung-yoon Lee from the Korea Institute of Finance warns -

“If banks merge and acquire among themselves, the market concentration rate would rise, and problems associated with oligopoly could also rise…

…if Kookmin, Shinhan or Hana merges with Woori and Korea Exchange Bank, the market share of the top three in the industry would surpass 75 percent.”

Other than through M&A, other options include spliting the stake to sell to a number of buyers, or selling off the holding company’s subsidiaries, to make a reduction in the size of a potential sale.

Hynix Semiconductor Lenders to Accept Bids for Stake by January

On Sunday (Dec. 20) Bloomberg  reported that creditors of Hynix Semiconductor will accept letters of intent from potential bidders for their controlling stake in the world’s second-largest maker of computer-memory chips by Jan. 29.

• The sale arrangers will send out notices to domestic companies tomorrow (Dec. 21), according to the statement released by main lender Korea Exchange Bank (KEB).
• Creditors of Hynix plan to sell all or part of their 28 percent stake, valued at about KRW 3.6 trillion ($3.1 billion) based on Hynix’s closing price on Dec. 18.

“Now is the right time for Hynix’s acquisition and we hope many companies will participate in the sale,” KEB said in the statement.

KEB owns 6.4 percent of Hynix, while Woori Bank has 6.3 percent and Korea Development Bank holds 4.8 percent, while six other financial companies own the remainder.

(Sources: Korea Herald, Korea Times, JoongAng Daily, Bloomberg)

More From privateequitykorea

• Korea’s economy in 2010 is brought to you by the letter ‘V’ and the number ’5′
• 35% Daewoo International stake to go on sale
• Woori Finance Privatization Update: Share buyback, M&A scenarios raised

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‘Woori leads big M&A year‘

In summary -

The Financial Services Commission (FSC), Korea’s financial regulator,  announced yesterday that they are looking to speed-up the privatization of Woori Financial Group.

State-run Korea Deposit Insurance Corp. (KDIC),  which owns 66 percent of Woori, will unload 16 percent in block sales next year and but is yet to decide how to sell the controlling 50 percent stake.

The FSC said that it would consider a few options, including selling the whole 50 percent to another financial company or dividing it into several stakes for different investors.

Analysts say that the 50 percent stake will not be an easy sell as price could reach KRW 8 trillion ($6.9 billion), including a premium for management rights.

The JoongAng Daily provided this table with the article -

Lone Star Funds, the biggest shareholder of Korea Exchange Bank (KEB) , have stated they want to sell KEB in the next 6 to 12 months, whilst BC Card, Green Cross Life Insurance, and Prudential’s brokerage and asset management units are already up for sale. 

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