South Korea Cancels $6B Woori Sale

South Korea canceled the sale of its $6 billion stake in Woori Financial Holdings, nixing what would have been the country’s largest ever financial sector privatization, Reuters reported. The government said it would consider other alternatives, including a private contract and block sale, Reuters said.

(Reuters) – South Korea cancelled on Friday its biggest ever financial sector privatisation and said it would consider alternatives including a private contract and block sale, after two key bidders dropped out.

The scrapped public auction of a $6 billion-plus stake in Woori Finance Holdings would deal a blow to the government’s drive to complete its financial sector bailouts in the wake of the Asian financial crisis in the late 1990s.

“We concluded that it is hard to anticipate the sale of a controlling stake in Woori via valid competition and maximization of recovery on the public fund under the framework initially intended,” said Min Sang-kee, co-chairperson of the Public Fund Oversight Committee.

Min, however, did not provide a timeline for the government to restart the sale process with an alternative method.

The government owns 57 percent of Woori through state-run Korea Deposit Insurance Corp, after selling a 9 percent stake in the financial group earlier in April through a $ 1 billion block deal.

Two consortiums, representing Woori employees and customers, had been willing to buy the entire 57 percent stake on offer, but baulked at the hefty premium being asked by the government.

“As strong contenders pulled out due to their own situation, uncertainties have risen,” a Financial Services Commission spokesman quoted Chairman Chin Dong-soo as saying to local cable network WowTV.

Also, South Korea has dropped the sale of Woori’s two regional banking units–Kwangju Bank and Kyungnam Bank.

CRITICISM

The suspension of the sale may elicit criticism that the government still owns a private bank more than a decade after it took control of the firm by pouring in billions of dollars of taxpayers’ money but the decision would help the government avoid blame that it is selling cheap.

“I feel sorry that (we) could not live up to the expectation from the public and the market regardless of the reason,” Min told a press conference.

The government argues that it needs to ensure a proper return for the state funds that were invested in Woori Finance after injecting 12.8 trillion won ($11.08 billion) into Woori Bank and other financial firms. It clawed back about 5.3 trillion won in bailout funds as of late-June this year.

The two groups that dropped out had been willing to pay a 2-3 percent premium for the entire stake on offer, well below the 10 percent premium to book value that is the sector average in recent deals. [ID:nTOE6BC05Q]

South Korea received 11 bids in the first round of public auction for Woori but most of them want to take minority stakes rather than the sizeable stake on offer that could finally end government control of the financial institution.

Among the 11 bidders are Carlyle Group , Macquarie Group , MetLife Inc and local private funds Vogo and MBK Partners, according to sources familiar with the transaction.

Vogo said it aimed to buy a controlling stake but added it may be tough to meet the government’s “valid competition” rule which says there must be at least two bidders for Woori, according to sources. [ID:nTOE6BF00Q]

Shares in Woori ended down 0.7 percent, ahead of the announcement of the sale cancellation, underperforming the wider market’s 0.9 percent rise. ($1=1155.0 Won) (Reporting by Ju-min Park; Editing by David Chance and Muralikumar Anantharaman)