Bloomberg News

Korea Should Oppose Woori Bids by Buyout Funds, Panel’s Lee Says

December 12, 2011

Dec. 13 (Bloomberg) -- South Korea should discourage buyout firms from bidding for Woori Finance Holdings Co. to avoid repeating the mistake it made when Lone Star Funds acquired Korea Exchange Bank, according to a member of the committee in charge of state asset sales.

“We must learn the lesson from this painful experience,” Lee Jae Sool, who was appointed to the Public Fund Oversight Committee in September, said an interview on Dec. 9 in Seoul. “We shouldn’t let private-equity funds buy Woori the next time the government tries to privatize it.”

The comments indicate a reluctance to widen the potential pool of suitors for Woori after South Korea abandoned its second attempt to sell the firm in August when it attracted a solitary bid. Dallas-based Lone Star agreed this month to sell KEB to Hana Financial Group Inc. for $3.4 billion, seeking to exit an eight-year investment that has been tarnished by legal disputes, regulatory delays and a public backlash over profits.

Lee, chief executive officer of Deloitte Anjin LLC, a Korea member firm of Deloitte Touche Tohmatsu, joined the eight-member committee after the Woori deal collapsed.

He said the sale of Woori, the country’s biggest financial firm by assets, was impeded by the government’s insistence that the deal satisfy three conditions. The criteria -- earliest possible privatization, maximum recovery of bailout funds, and benefit to the development of South Korea’s financial industry - - “conflict with each other,” 52-year-old Lee said.

Lost Opportunities

“We should decide which takes priority,” he said. “We may have lost opportunities by delaying decisions. I expect the committee will agree on the top priority next year before proceeding with a new sale process after 2013.”

The Public Fund Oversight Committee gave up its most recent attempt to sell Woori in August, saying the sole bid it received from a private equity-led group didn’t constitute “valid competition.” South Korean President Lee Myung Bak has been trying to offload the banking group, which was created in 2001 as a holding company for lenders rescued following the 1997-98 Asian financial crisis, to promote banking industry competition.

Criticism of Lone Star’s profit from its investment in KEB is excessive, given that the government had “few options” when it sold the bank to the U.S. fund, the committee member said.

Time to Leave

“It’s easy to say now why we allowed Lone Star to buy KEB in the first place. No one was willing to inject capital into the bank in 2003 and the public and politicians opposed a government bailout,” said Lee. “It’s time to let Lone Star leave and keep our national image and learn the lesson that private- equity funds won’t benefit the long-term development of banks.”

Lone Star recovered 2.9 trillion won ($2.5 billion) through dividends and the sale of some shares after spending 2.15 trillion won for the KEB stake since 2003. It’s set to recoup more than $4 billion in total if the sale to Hana succeeds.

Local-currency loans at KEB grew 54 percent in the seven years ended December 2010, less than industry-wide growth of 87 percent, according to Financial Supervisory Service data. The lender’s branches increased 8.5 percent to 381 in the period, less than the 17 percent across the domestic industry and 31 percent at Woori Bank, the data show.

KEB employees and civic groups are urging regulators to judge whether Lone Star is qualified to be a major shareholder before it sells the stake to Hana. The Financial Services Commission in November ordered Lone Star to divest 41 percent of KEB by May 18, saying it was only qualified to hold 10 percent of the lender after being convicted of stock-price manipulation in October.

Separately, Lee said Deloitte Anjin, one of South Korea’s big four accounting groups, plans to more than triple annual revenue to 1 trillion won by 2020 from the current 300 billion won as it expands consulting and advisory services. Deloitte’s global network will help it provide advice to Korean companies seeking overseas takeovers, the CEO said.

--Editors: Russell Ward, Nathaniel Espino

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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