South Korean Government Trying Again to Sell Woori Bank

On August 22, the South Korean government announced a plan to sell Woori Bank to oligopolistic shareholders. The purpose of the plan is to expedite the privatization of the bank rather than to maximize the recovery of public funds. 

According to experts in the financial sector, this plan shows the government’s will to tackle the controversies surrounding Woori Bank sale at a giveaway price. For the recovery of the public funds invested in the bank, at least 13,000 won should be guaranteed per share. However, the stock price of the bank was 10,250 won per share on August 22. The sale price is unlikely to increase to a large extent, despite incentives such as a right to recommend an outside director, in that the price had been 11,050 won per share during the fifth minority share sale last year.

Instead, the government clarified its will to change the structure of the domestic banking sector into a more competition-oriented one led by the private sector by returning Woori Bank to the market and triggering competition among banks. Many in the financial sector are regarding this plan as the most realistic one as of this point in time but still doubt that the government will be able to completely drop its big brother role with the government still being a major shareholder of the bank.

In the plan, the government proposed a blueprint regarding the governance structure of Woori Bank following the sale. According to the investor incentives included in the plan, any investor acquiring its shares equivalent to 4% or more is allowed to recommend an outside director. Assuming that 30% shares as the object of the sale are acquired by five to six investors, the number of investor-recommended outside directors in the board of directors becomes five or six and they can exert a decisive influence on the management of the bank. These outside directors can elect new executives by forming an executive candidate recommendation committee and can intervene in dividend rate determination as well. The government is planning to let them elect a new president late this year.

The incentives vary with the degree of bidding participation. For example, an outside director recommended by an investor with 6% shares or more can have a tenure of three years while the period is limited to two years for one recommended by an investor with less than 6%.

Even after the sale, the government remains the largest shareholder via the 21% shares owned by the Korea Deposit Insurance Corporation (KDIC). In that case, however, the MOU between the KDIC and Woori Bank for the restructuring of the latter is immediately terminated. The Financial Services Commission explained that this is to ensure the maximum autonomy for the bank and limit the KDIC’s intervention via non-executive directors and as the largest shareholder to cases of great significance related to the enterprise value of Woori Bank.

The likelihood of the sale of Woori Bank is higher than ever now with the government’s intervention in its management set to be minimized. From now on, the number of investors is likely to become the biggest issue. It is said that Woori Bank president Lee Kwang-goo has met 50 or so investors in the Americas, Japan and so on until the first half of this year and about 40% of them have given positive answers.

Another issue is the non-price factors that the government is to take into account along with price factors during the course of the upcoming tender. The government has yet to provide an explanation with regard to detailed requirements concerning the non-price factors, which means there is room for the government to intervene in the bidding.