Regulators stuck on selling Woori
By Kim Tong-hyung
The Lee Myung-bak administration refuses to admit defeat in its attempts to privatize Woori Financial and recoup the massive amount of public funds spent to rescue banks in the fallout of the late-1990s financial crisis. Meanwhile, the discontinuity between speechifying bureaucrats and a cynical market has become a massive gulf.
Unloading the government’s 57 percent stake in Woori, valued at around $5.5 billion, will provide an important first step in fulfilling the aspirations to create a ``megabank,’’ a true financial heavyweight that could hold its own against other national champions and be a force in investment banking, policymakers say.
There is just one minor problem with all this discussion: To build a megabank around Woori, the government will still have to find a new owner with deep pockets and matching ambition. With Woori already being one of the biggest players in what is increasingly becoming a cut-throat banking sector, the existence of such a taker seems fantasy.
The government has failed in its previous two tries in past years to divest its stake in Woori due to insufficient bidders. There isn’t much reason to think that the fortunes will improve on the third attempt, although officials at the Financial Services Commission (FSC) have vowed to get more creative in finding a privatization process that works.
Executing a deal of this magnitude would require political fortitude and that’s one thing the Lee government may fail to provide as the clocks ticks toward the presidential election in December.
The ruling Saenuri Party defending its majority status in the National Assembly after the general election on Tuesday was obviously a relief to policymakers, but still, the odds for a Woori deal remain something short of plausible.
Saenuri’s new leaders had been distancing themselves from Lee, who recent surveys show is as popular as gout, and it bears further watching how far they are willing to push the privatization attempt at the risk of irking the mighty umbrella unions of bankers.
The FSC nonetheless is determined to get things done. As it continues to search for a buyer for the controlling stake in Woori, it is also open about merging the company with another financial firm. KB Financial Group, which has for years competed with Woori over supremacy in the backing industry, is already being talked up as a candidate for a merger.
``I have yet to draw a detailed picture of how to advance the privatization process of Woori. But there is a lot of interest in the financial industry over the bank,’’ FSC Chairman Kim Seok-dong told reporters recently.
The ideal scenario for policymakers is that Woori is picked up by one from the rest of the ``big four’’ financial holding companies in KB, Hana and Shinhan. And they might have a better chance of persuading one of them to merge with Woori than getting it to agree on acquiring its rival outright.
To acquire Woori, the financial companies would need to eat up much more than the government’s 57 percent share.
Current regulations require a financial holding company to obtain at least 95 percent of the target firm when it seeks to acquire it. Buying 95 percent of Woori would cost more than 10 trillion won and none of the banking groups is willing to cut that big a check.
The FSC last year attempted to reduce the requirement to 50 percent if the target is a financial holding company that has been bailed out with taxpayers’ money, as in the case of Woori, but failed due to opposition from politicians.
Merging with Woori would certainly be an easier and less expensive option for the financial firms as the state-run Korea Deposit Insurance Corporation would likely remain as Woori’s biggest shareholder with a 20 percent-plus stake. But this type of deal would run against the core reason the government has been pushing Woori’s privatization, which is to recover the massive amount of public funds that were spent to save it.
One might imagine a consortium of international buyout firms sweeping in and taking the government’s controlling stake in Woori.
But this is not the path the FSC wants to go, not after enduring a massive amount of abuse over the years of letting the Texas-based Lone Star Group takeover the Korea Exchange Bank (KEB), which it recently sold to Hana for a lavish profit. Critics have labeled Lone Star as the poster child of ``meoktwi’’ (eating and fleeing) foreign capital that takes advantage of distressed Korean assets.
As a result, all eyes are on KB, whether it be in play for a merger or acquisition. Hana has no room to swallow another industry rival after it barely digested KEB. And Shinhan has shown no interest in expansion that isn’t organic.
The most aggressive move to takeover Woori so far has come from the state-run Korea Development Bank (KDB), led by former Finance Minister Kang Man-soo. The combining of KDB and Woori would create a state-run bank with more than 500 trillion won (about $437 billion) in assets.
However, the plan was blasted by critics, and eventually, financial regulators wilted under pressure and disqualified KDB from a potential deal in July last year.