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Staff Reporter
Korea has the capability to move faster than its regional rivals such as China and Japan in becoming a financial hub of Northeast Asia, but its financial industry must be bolder and ready to embrace competition to realize its goals.
John Walker, the chairman of Macquarie Group Korea, advised Korea to accelerate its efforts to establish itself as the derivatives destination of Asia as part of a three step initiatives process.
``If Korea could do that like Chicago did as the derivatives hub in North America, the country can become the derivatives destination of Northeast Asia by immediately broadening the market,'' said Walker in an interview with The Korea Times. ``Such a move will encourage quite freely the development of structural products.''
He added that this effort will include Korea along with the only two other countries _ the U.S. and England _ in channeling derivatives products worldwide.
The chairman also stressed the need for the development of domestic hedge funds to compete with global funds as they have proven to be extremely useful in developing the world's economies and capital markets over the years.
Also, although it may seem controversial, he said the swift privatization of the state-owned Korea Development Bank will give itself a strategic advantage over Shanghai and Tokyo, while stimulating inflows and outflows of capital and boosting both domestic and foreign businesses in the country.
``It will send a huge signal to the world that Korea has freed up its capital market,'' stressed Walker.
He noted that Korea will face difficulties in becoming a hub as long as the market has a huge state-invested firm competing with private institutions.
Walker said if Korea moves quickly to advance the financial services market, it will trigger a positive chain reaction _ it will boost inbound tourism and expand human capital networks.
``Sydney, Singapore, Hong Kong and London have strong tourism industry and financial industry. You can't get one without the other,'' he said.
He reiterated that such initiatives will spur Korea to develop a niche and an edge, while Shanghai, Tokyo, Hong Kong and Singapore are looking to do the same thing, or maintain their financial status.
Seoul was also advised to cut corporate taxes, and eliminate unpredictability and inconsistency in taxation. At the same time, it needs to regulate based on principles rather than rules with the creation of a presidential committee, he said.
Toward Holding Company Structure
The chairman said his firm is positively looking to restructure the group into a holding company structure, given its diverse range of companies from brokerage, asset management to real estate and social infrastructure investments.
``There will be some advantages in moving toward that structure from an efficiency point of view and the market perception, and from, most important of all, the point of view of providing better services to our clients,'' said Walker.
He said legal advices are being sought out in carrying out such a mission, and the group is reviewing both ``pluses and minuses'' about reforming into a holding company. But he hinted that feeling is much more toward the positive rather than negative on changing its group structure.
Macquarie Group Korea made inroads into Korea in 2000, starting with only five staff and zero assets under management.
After years of moves to localize, the group now has 11 businesses with 360 employees who are mostly Koreans, and 17 billion Australian dollars in assets under management as of March this year.
Macquarie said its niche in Korea is mainly arranging the financing of the development of social and economic infrastructure such as roads, ports, bridges and power stations with the government and its partners such as Shinhan Bank and 25 other firms.
His intuitions when coming to Korea were rosy as he felt the ``energy'' in the Korean environment with assurances that it was the right place for a long-term business rather than feeling risky considering the country was just coming out of a financial crisis.
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He said the government showed full determination and a clear, transparent plan to privatize its infrastructures by joining hands with private businesses such as Macquarie.
Since then, it has been the most active foreign investment bank in Korea. It set up the Macquarie Korea Infrastructure Fund, which arranges and invests in social overhead capital, and launched a historic dual listing of the fund both on the Seoul and London stock markets in 2006.
``Through the investments we've made through the Macquarie Korea Infrastructure Fund, we created 44,000 construction jobs building roads and ports,'' said the chairman.
As the Australia Sydney-based Macquarie Bank acquired ING's Asian equity business, the Korean group moved into the securities business and established Macquarie Securities Korea, which is noted for being the first foreign broker to list equity linked warrants on the Korea Exchange.
``It was all organic, one step at a time. It wasn't risky, because we didn't invest heavily without understanding the market. And a lot of what we did, we did it with partners (including Kookmin Bank and Woori Bank),'' said Walker.
Further Expansion
The 52-year-old head of Macquarie's Korean operations said these will continue to grow organically, but did not rule out mergers and acquisitions in line with the capital market integration bill, set to be implemented in 2009.
``We do have an open mind, when the right kind of opportunity comes along,'' said Walker.
On top of that, the group is looking to pioneer the wealth management and institutional brokering businesses.
Recently, it sold off one of its asset management units, Macquarie-IMM Investment Management, to Goldman Sachs to concentrate more on designing financial investment products and managing assets with the utilization of bigger distribution channels through securities firms and banks. He said the group has no more plans for further liquidation.
The company is finalizing a deal with two securities companies and Shinhan Bank to distribute its products. And Goldman Sachs will continue to sell Macquarie products.
``We will develop more funds and more asset management businesses. We will probably list some of those businesses over the next five to ten years,'' said the chairman.
Its investment in infrastructure will continue to serve as the group's niche, he said, adding that Macquarie has arranged financing for 18 new schools mostly in Gyeonggi Province over the past year, and is currently working on another five schools through funds and other financial viable investment products.
Its interest has also started to expand into the telecommunications and entertainment media sectors. A Macquarie consortium recently acquired the multiplex movie theater Megabox. It has not confirmed yet on reports that it will bid for Hanaro Telecom, the country's second largest broadband Internet carrier.
People First
Walker said the Capital Market Consolidation Act will encourage Korean financial firms to diversify their businesses and create a large number of higher quality firms, but they must be daring in terms of competing with one another.
He noted that banks should take on the challenge of securities companies, which are luring their deposit holders, while brokers should beef up in a fight against banks that have much bigger balance sheets.
But the road toward the transition will not come easy.
``I think we're going to see a lot of mistakes as well just as you do in any market when there's a change,'' said Walker.
He advised Korea not to be too hasty when making decisions about going global because overseas markets such as Hong Kong and Singapore tend to be much more competitive.
He said to not just look at size and brand, but always to first think about the people when conducting M&As, calling for Korean corporate culture and management to change and adopt a bottom-up organization model. Without reforms, he added there can be no development of professional talent and worldwide networks.
``Traditional Korean management style is sort of command and control style. Think of the people because this business is all about the people,'' emphasized Walker.
The chairman said as Macquarie is here to stay for a long time by helping domestic firms and partnering with them in investing in Korea and abroad, the group should be recognized as a local company, not discriminated as a foreign entity that will leave soon after gaining profits.
``Everything we invest is largely money from our 25 Korean institutions. But still from time to time, a congressman will say, they got a foreign name, so they're foreign,'' said Walker. ``One of the big messages that I am trying to get out is as we invest more and more here is this message about us being local.''
phk@koreatimes.co.kr
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