By Kim Tae-jong
The government plans to join hands with sovereign wealth funds from the Middle East to launch private equity funds (PEF) to support small Korean companies seeking to advance into the rapidly-growing market.
To that end, industry sources said the Korea Finance Corporation (KoFC), the state-run lender, is now in talks with sovereign wealth funds in Saudi Arabia, the United Arab Emirates and Kuwait to create PEFs worth of around 500 billion won.
The KoFC said that the move to form the PEFs is underway, though it is still in its initial stages.
"It's true that we're considering creating them but nothing has been decided yet," an official from the KoFC said. He declined to elaborate further on the matter.
The proposed PEFs are similar to the corporate partnership program run by the National Pension Service (NPS) in that it is designed to help domestic firms' overseas expansion, but different in that it would mainly focus on small- and medium-sized firms.
According to the sources, the KoFC is seeking to sign a memorandum of understanding with sovereign wealth funds in the region to create two to three PEFs each worth 100 billion to 300 billion won in different countries, the sources said.
Once launched, the funds will be invested in companies in such areas as information technology, renewable energy development, education and medicine.
The state lender's move is in line with government efforts to develop new growth engines in the relatively untapped overseas market. The administration announced a series of measures in May to help local firms tap into oil-rich countries.
According to the measures, the government will provide incentives to firms in areas such as information and communication technology, medicine, defense, culture and sports; different from previous support to builders and labor-intensive industries in the 1970s and ‘80s.
Middle East countries have long shown interest in attracting foreign investment to develop their economies in preparation for the post-oil era.
They want to develop information technology, manufacturing and renewable energy industries to change the structure of their economies that mainly depend on oil exports.