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[Editorial] Woori privatization

The government’s renewed plan to privatize Woori Finance Holdings appears to have collapsed in the face of lawmakers’ opposition to the possible emergence of a mega bank.

Last month, the Public Fund Oversight Committee resumed the process of selling off the government’s 57 percent stake in the nation’s second-largest financial group. The process was stalled in December following an aborted attempt to auction off the shareholdings to a consortium of the company’s corporate clients.

To avert another failure, the Financial Supervisory Commission sought to encourage financial holding companies to participate in the bidding process by lowering the huge costs they have to finance to acquire managerial control of Woori Finance.

Currently, a financial holding company that intends to take over another financial holding company is required to purchase a 95 percent or larger stake in the target.

This means a prospective buyer that purchases the government-held stake is obliged to acquire an additional 38 percent stake in Woori. Furthermore, the buyer is also required to pay a control premium to the government for securing a majority stake.

As a result, the overall costs of taking over Woori Finance would exceed 10 trillion won, an amount that none of the domestic financial holding companies can afford.

To alleviate this burden, the FSC proposed to lower the minimum stake acquisition requirement from 95 percent to 50 percent if the takeover target is a government-owned financial holding company, such as Woori Finance.

Given the difficulty in finding a qualified bidder for the financial group, the proposal makes sense. However, the lawmakers on the National Assembly’s National Policy Committee opposed the proposal, suspecting that it was a ploy designed to help KDB Financial Group, a state-owned policy banking group, acquire Woori Finance and create a mega bank.

KDB chairman Kang Man-soo is a staunch advocate of a mega bank. A close aide to President Lee Myung-bak, Kang is convinced that Korea needs a mega bank that can make its mark in the global financial market.

But the lawmakers do not buy this idea. They rightly note that merging the two state-owned banks hardly fits in with the government’s privatization policy.

To ease the lawmakers’ opposition, FSC Chairman Kim Seok-dong pledged to ban KDB from purchasing the government-held Woori shares. But this hardly impressed the lawmakers. If anything, they threatened to have the 95 percent acquisition requirement stipulated in the Financial Holding Company Act if the FSC seeks to soften the provision.

Currently, the provision is set in an enforcement decree, which FSC officials can revise without approval from lawmakers. But if the lawmakers put it in the act, there would be no room for the FSC to adjust it.

Hence, the FSC has decided to stop its push to change the provision so as not to provoke the lawmakers. However, this means financial holding companies other than KDB ― Kookmin, Shinhan and Hana ― will not be able to participate in the auction. As a result, there will most likely be no letters of intent submitted to the PFOC by the June 29 deadline.

If the sale process fails again, the lawmakers on the NPC cannot avoid criticism. They were right to oppose the KDB’s acquisition of Woori Finance because it could not be seen as privatization. But they went too far when they stuck with their opposition even after the FSC made clear KDB would not be allowed to acquire the Woori stake.

The lawmakers’ concerns about systemic risks posed by a mega bank are valid. But their objection to the FSC’s proposal would further delay the privatization of Woori Finance, which has been badly managed for more than a decade under the control of the government. They should allow the FSC to go ahead with its privatization plan.
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