Kang Seung-woo is the Business Desk editor at The Korea Times. Prior to this position, he covered politics, national affairs, finance and sports.
Banking reshaping to take place this month
Regulators discussing future for up-for-sale Woori Financial, Korea Exchange Bank
By Kang Seung-woo
By Kang Seung-woo
The future direction of the Korean banking sector’s restructuring is likely to be decided this month, with the Woori Financial privatization and Korea Exchange Bank (KEB) takeover taking center stage.
However, the probable outcomes are not expected to clear the way for the deals to be done as hoped, as unfavorable factors are looming.
The government announced a road map for the sale of Woori in May after suspending the deal worth $6 billion (6.49 trillion won) to auction off its 56.79 percent stake December due to the absence of a valid bidder.
The financial authorities are scheduled to accept letters of intent by June 29 and to select a preferred bidder by September in order to sell the nation’s largest financial holding firm by assets.
The Financial Services Commission (FSC) and its Chairman Kim Seok-dong have aggressively pursued the Woori sale by pushing to relax rules in hopes that the regulatory revision will allow the nation’s major financial services companies to participate in the bid.
The existing rules require a financial holding company to acquire at least 95 percent of the target holding company in consolidating their businesses, but a revision will reduce the requirement to 50 percent if the target is a financial holding company that has been bailed out with taxpayers’ money.
As a result, there is speculation the government is trying to revise the rules to help Korea Development Bank Financial Group (KDB) to become the favored buyer for Woori because its Chairman Kang Man-soo, former finance minister and President Lee Myung-bak’s top economic advisor, publicly expressed the group’s interest.
Where the government stands remains to be seen, as the financial regulator last week suddenly stood against KDB’s absorption of Woori on low public approval.
“As there has been not enough public consensus about KDB Financial’s purchase of Woori, the FSC has come to the conclusion that it is not desirable for KDB Financial to bid for a stake in Woori Financial,” the FSC chairman told lawmakers to rule out such speculation.
Although the revision is to be passed by the National Assembly, there is skepticism to deal with.
With KDB pulling out of the process, there are few valid buyers among domestic major banking groups, as they have kept silent on the purchase of Woori.
KB Financial Chairman Euh Yoon-dae made it clear last week that his group is not interested in Woori.
“KB has no intention of taking part in the bid to buy Woori Financial,” he said.
He added that KB Financial also has no plans to take over an overseas lender.
Hana Financial Chairman Kim Seung-yu said that the No. 4 banking group has not considered joining in the Woori bid.
In the wake of the Asian financial crisis, the government spent 12.8 trillion won in taxpayers’ money in 1998 to bail out Woori Bank and several financial companies that later merged to become the first financial holding company in Korea in April 2001.
Hana’s pursuit of Lone Star Funds’ controlling 51 percent stake in KEB is expected to take shape this month.
Last week, the Seoul High Court started its hearing on proceedings against Paul Yoon, Lone Star’s former head of Korean operations, over stock price manipulation aimed at buying KEB Card at a lower price. Banking regulations deny majority status to an entity whose employees are convicted of a business-related crime in a five year period surrounding the acquisition.
In March, the Supreme Court overturned the High Court’s not-guilty verdict on Yoo and sent the case back to a lower court. Yoo’s second court session is scheduled for July 21.
Hana’s negotiations with the Dallas-based buyout fund to keep the sale alive are expected to be finalized soon after the FSC failure to approve the deal prevented the two sides from meeting last month’s deadline.
Lone Star plans to file a petition to nullify charges against it that the private equity fund believes unconstitutional, fueling fears that it may take a few years to settle the case.
In November, Hana Financial agreed to buy KEB’s major stake from Lone Star, but it has been waiting for regulatory approval of the deal because the FSC is not poised to examine the case until Lone Star’s position as a majority shareholder of KEB is legally determined.