Posted : 2009-12-18 20:18
Updated : 2009-12-18 20:18

Woori Privatization Mulled via M&A

Lee Pal-seung
Woori Financial Group Chairman
By Yoon Ja-young
Staff Reporter

Efforts to privatize Woori Financial Group, 66 percent of which is owned by the government, are likely to gain momentum as the government hinted it is willing to do so through a merger & acquisition (M&A).

In a report to Cheong Wa Dae, Wednesday, Financial Services Commission Chairman Chin Dong-soo said that an M&A could be an option to privatize the nation's second-largest holding company.

"A merger would enhance its value and make a sell-off easier," Chin said. The chairman added that the government would sell its stake in Woori as soon as possible.

As a result of an infusion of public funds during the Asian financial crisis, the government came to be the primary investor in Woori Financial through the Korea Deposit Insurance Corporation (KDIC). The KDIC currently has a 66-percent stake in Woori after selling off 7 percent on Nov. 24.

An M&A has been mentioned as the most probable and realistic way to make the group a private entity, considering the government's wish to recover as much of the public fund as possible. It has recovered 4 trillion won so far from the 12.8 trillion won it infused.

Woori Too Big a Fish?

An M&A is the most probable way forward as it could be difficult to find a buyer otherwise. To privatize Woori Financial, which is headed by chairman Lee Pal-seung, the government would have to sell 50 percent stake and transfer managerial control to the private sector.

This means the buyer has to cough up at least 7 trillion won ― around 6 trillion won for the stake and plus a premium for managerial control. Analysts estimate there will be very few potential buyers, both at the local and global level, for such a considerable purchase.

If Woori merges with another financial holding company by swapping shares and setting up a new financial holding company, the government's stake would be reduced. If it merges with KB or Shinhan Financial, for example, on 50-50 terms, it is estimated that the government stake in Woori would fall to 25 percent.

It would also pull up share prices, as the new bank set up through the M&A would be inarguably the top in the industry. The deal would change the landscape of the banking industry.

It would lead to a rise in share prices as it would be the top bank in the country. This means it would be easier to sell off stakes and collect the public fund. Woori shares closed at 14,700 won per share Friday, down 600 won from the previous close.

However, some point that such a move could lead to the domination of the industry by only a few players.

"If banks merge and acquire among themselves, the market concentration rate would rise, and problems associated with oligopoly could also rise," said Lee Byung-yoon, a research fellow at the Korea Institute of Finance.

"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," Lee said, explaining that this would create an oligopoly.

Some say that the government may consider other options first before putting Woori up for M&A. It could split the stake to sell to a number of buyers, or it could sell off the holding company's subsidiaries, like Kyongnam or Kwangju banks, to make a reduction in the size of a potential sale.
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