The sale of Woori financial holding company should be speedily but carefully.

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The sale of Woori financial holding company should be speedily but carefully.

The sale of Woori financial holding company should be speedily but carefully.

(Photo = nocutnews)

   Last December, the discussion of privatization of Woori financail holding company was halted because the government thought that it was impossible to sell the company with an effective competition in adverse market condition. However, since Kim seok dong, chief of Financial Service Commission, threw in a few comments of Woori finance sale recently, and Lee Pal-seung has been reappointed Chief Executive of Woori Finance, the interests of the sale have increased.

 Background of the sale halt.

  According to the public fund management commission’s plan, they intended to finish the sale within the first half of this year.  However, the strongest candidiate, Hana banks turned their way to Korea exchange bank, and Woori consortium led by Woori employees was pulled out of the bid because of the management premium, the effort to sell Woori financial holding company at a high price through effective competition came hard. Effective competition means there are at least two competitors want to buy more 28.5% share that is the half of gorverment share.

 

 Although there are some other bidders, they are more interested in financial investment than management right. Also complex legal restriction made the government to halt the sale process. For example, there were four PEF expected to participate in the preliminary bid, but they were restricted by financial holding laws. For these reason the government decides to stop the sale process and discuss to find new approaches.

 Reason for solving it as soon as possible.

  The sale of Woori financial company is very important event and it should be resolved quickly for the following reasons. First the delay of sale weakens competitive power of Woori company. For the goal of maximizing its sale-value, the company focused on short incomes, and change its executives frequently and it makes Woori company hard to establish long-term polices. There might be negative effects on whole financial industry in South Korea because Woori banks is  one of the largest finanical holding company in South Korea.

 

 High interest expense of public funds are the reason to quicken the sale process. From now on 12.8 trillion won got into Woori financial holding company and the government has received 5.6 trillion won. Now 56% of shares remain which is valued at 400 billion won, under the assumption that the rate of deposit insurance bond interest rate as 6% and the stock price as 14,000won. As soon as the bid isclosed, the more money is saved and it is the effective way to achieve the goal of maximizing recovery of public funds. Although a bond of sympathy to settle the privatization as soon as possible forms a social consensus, there are some obstacles solving in selling the company.

 1. Legal restriction on selling financial holding company.

  Because the restrictive purpose that financial holding company laws have, it is hard to sell Woori in South Korea because there are complex legal restriction on selling financail holding company. Specially sales of financial holding companies differ from sales of common companies. For example, in order to buy a financial holding company, one must buy the financial holding company’s shares more than 95%, but the cost of 95% of Woori company’s share is too big for Korean market complete the transaction. Inaddition, non financial sector companies and foreign private-equity funds can not buy financial holding company’s shares more than 10% . The complex legal restrictions on selling financial holding company is one of the major hurdles.

 2. The goal of maximizing recovery of public funds.

  The government regard maximizing recovery of public funds very highly because the taxes of pubilic members put into Woori financial holding company. Other banks that received public funds were sold under considering of management premium. However the management premium regarded buyer needs more money for takeover. Indeed, Woori consortium abandoned its proposed takeover because they didn’t find any reason to pay for management premium.

 3. Crisis of savings banks.

 The crisis of savings banks also make government officers to turn their sights to settle the problem. Moreover Woori’s acquisition of  Samhwa savings bank, which was the started the crisis, have bad effect on the sale.  

 Conclusion.

  

(Photo = Yonhap News)

The sale of Woori financial company is one of the most important issues to change in South Korea’s banking sector and need to solve the problem as soon as possible for maximizing recovery of public funds. However, the government should consider that the sale of Woori financial company has large effects on whole financial industry, so they find the solution with deliberation.

Hyeonjin Kim(kgw486@gmail.com)

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