Pension Fund under fire for Hana investment
By Kim Tae-gyu
As Korea’s National Pension Service (NPS) readies itself to participate in the issue rights of Hana Financial Group, criticism has sprouted up that the state-run agency overly favors Hana despite the risks.
In order to fund its 4.7 trillion won buyout of Korea Exchange Bank (KEB) from U.S. closed-end hedge fund Lone Star, Hana Financial is poised to raise 1.2 trillion won through issuing new shares.
The Seoul-based financial holding firm of Hana Bank has tried to find long-term strategic investors but it is now turning to financial investors including private equity funds just like Lone Star.
The NPS is ready to partake in the rights issue through a local private equity fund that wins preferred bidder status among several short-listed players. Currently, MBK Partners seems to be the strongest contender.
“As long as the preferred bidder comes up with an attractive offer, we will strive to channel a substantial amount of money to the bidder so that it can invest in the right issues of Hana Financial,” an NPS official said.
The move is bringing about negative reactions from market observers because the NPS already has an 8.2-percent stake in Hana Financial Group. The former is the No. 1 stakeholder of the latter.
This compares to its stakes in other financial holding companies of 4.5 percent in KB Financial and 6.1 percent in Shinhan Financial.
This has prompted suspicions that the NPS is doing Hana a favor as its Chairman Kim Seung-yu is a long-time friend of incumbent President Lee Myung-bak. Both studied business administration together at Korea University.
“If the NPS wants to exert its influence on the management of Hana Financial, its current stake of more than 8 percent is big enough to do so,” professor Kim Sang-jo of Hansung University said.
“If not, it hardly has any reason to snap up more shares of Hana Financial. I do not see any legitimate rationales behind the envisioned purchases of Hana shares from the NPS.”
The NPS was originally not supposed to have more than a 9 percent of stake in any financial outfit but the government ruled last week that it can raise the portion to 10 percent without having to obtain the green light needed previously.
This allows the NPS to take part in the equity finance of Hana Financial, which has yet to secure additional 1.2 trillion won to pay the 4.7 trillion won necessary to obtain the KEB.
Professor Kim said that the case might be discussed in the hearings under the next administration should the NPS pour more money into Hana.
KEB trade union spokesman Kim Bo-heon went a step further at lashing out at the NPS.
“The pension payments are a kind of surcharge, which many people regard as de-facto taxes as they seriously worry whether the NPS will be able to remain financially healthy in later decades,” Kim said.
“If the NPS invests more in Hana, it’s tantamount to channeling taxpayer’s money to jack up profits of Lone Star. Actually, it’s worse since the investment comes from cash reserves, which people established for their future.”
Asked about such comments, the NPS official said they were groundless.
“We are replacing some of our assets bearing low profitability with higher-return products. That is the case for the equity investment in Hana. Why do we have to refuse any good offer?” he asked.