By Kim Jae-kyoung
Another big concern for KB Financial Group Chairman Euh Yoon-dae is overhang issues associated with Kookmin Bank’s treasury stocks valued at around $2 billion. The chairman has pushed for the sale of the lender’s 9 percent stake in KB in early April but it has been delayed due to pricing issues.
He believes that one of the biggest drags on stock prices is investors’ overhang concerns over the treasury shares. The group has planned to unload Kookmin’s shares in the form of the so-called club deal under which the shares will be sold to only a few investors, not to the public.
Regarding the timing of the deal, the 66-year-old CEO hints that it can come in the coming months, saying, “Since we make announcements, it can be done at anytime.”
KB shares closed at 55,400 won Friday, up from 51,300 won on July 13 when he took the helm. The prices peaked at 62,100 won on Jan. 4 this year and have since gone up and down due to the overhanging concerns, as well as lingering uncertainties.
“There are many global investment banks (IBs) that have expressed interest in Kookmin’s stake. In April, we tapped eight or nine IBs for the sale of the $2 billion stake but the amount they intended to buy reached $4 billion,” he said.
“Banking shares here are undervalued, shown in their price to book value ratios (PBR), which hover around only 1.1 to 1.2,” Euh said.
“From the structural perspective, I think local banks have already bottomed out in terms of financial soundness, although there are some concerns associated with household debts and troubled savings banks,” he added. “Given that banks are moving in a positive direction, Korea’s banking shares are very cheap.”
The former president of Korea University stressed that the first step for local lenders to become a global player is to improve their system in foreign currency risk management, saying that Korean banks have no philosophy in this area.
What’s in Euh’s mind is to transform KB into a lender from a borrower in the global money market by increasing foreign currency assets, such as in the U.S. dollar and Chinese yuan, the fastest way that he believes a local player can be on par with global players
“Korean banks receive more money than they lend but their deposits are mostly won-denominated. If we can convert these won-denominated deposits into dollar-denominated ones, we can solve a couple of problems at the same time,” he added. “The key issue is foreign exchange risk management. If we have a strong currency risk management system, we can encourage local customers to have dollar assets,” he said.
The KB’s chief has yet to put his philosophy into action but it is highly likely that a move is in the making with the local currency continuing to gain ground against the greenback.
“We haven’t brought a change in our foreign currency asset portfolio. The won-dollar rates have recently dropped to the 1,070 won level. We plan to increase our dollar holdings once the rate falls a bit more,” he said, refusing to comment on the exact level. The rate closed at 1,083.20 won Friday.
He forecast that the rate will not fall to the double-digit level this year, which implies that KB may start increasing dollar assets once the exchange rate hovers between 1,000 won and 1,050 won. The group also plans to raise its yuan holdings to support its Chinese operation.
Business Focus intern Chung Min-uck contributed to this article.