More than 10 years after South Korea spent $11 billion bailing out its weakest banks, taxpayers are still waiting to get their money back. It’s time to fix that, says Kim Seok-dong, the nation’s top financial regulator.

The government needs to push ahead with its third attempt to cut its 57 percent stake in Woori Finance Holdings Co., the company created in 2001 by combining the failing banks, as quickly as possible to recoup that money and arrest its eroding value, said Kim, who is chairman of Korea’s Financial Services Commission and the official in charge of the sale.

Shares of Seoul-based Woori rose after Kim said the latest plan ― to sell at least 30 percent, a stake that was worth about $2.1 billion Monday ― is more likely to succeed as its operations have improved and Korea’s financial markets have stabilized. Buyers must place preliminary bids by July 27. Woori’s market value had also dropped 35 percent since the first attempt in 2010.

“The U.S. government recouped all the funds it injected into Citigroup Inc. in two years,” Kim, 59, said in an interview in Seoul last week. “It’s over 10 years for Woori: isn’t it time for us to end that?”

Jeong Joon-beom, a Seoul-based Woori spokesman, declined to comment on Kim’s comments.

Woori rose as much as 7.5 percent, the biggest intraday gain since Dec. 1, before trading at 10,750 won, up 7 percent, in Seoul as of 1:14 p.m. The stock has gained 14 percent this year, valuing the government’s 57 percent stake at about 4.9 trillion won ($4.2 billion).

U.S. taxpayers made a profit of about $12 billion when New York-based Citigroup, which took $45 billion from the government in 2008 to avert a collapse, exited the bailout by the end of 2010. In contrast, Koreans have recouped only 5.6 trillion won of the 12.8 trillion won invested in Woori, most of which was spent following the 1997-98 Asian crisis on aiding local banks that were later combined.

Prospects for getting back the rest of the money seem to be fading as the value of the stake has dropped since President Lee Myung-bak’s administration announced its first bid to offload shares in Woori, Korea’s largest financial company by assets, in July 2010.

That effort stalled before preliminary bids could be made due to lack of demand from buyers. Another attempt in August had to be abandoned after only one group made an offer.

This time will be different, said Kim, who also co-chairs the Public Fund Oversight Committee, which monitors companies that have been bailed out by the government. He has been head of the financial regulator since January 2011.

For starters, Woori itself is in “much better shape” than it was last year, he said.

The company’s 2011 profit jumped 66 percent to 2.14 trillion won, propelled by the sale of stakes in local companies, while its assets grew 7.4 percent, according to data on its website. The company’s bad-loan ratio narrowed to 1.97 percent at the end of 2011 from 3.3 percent a year earlier as it wrote down non-performing debt and sold weaker assets.

Financial markets in Korea are also more stable, Kim said.

The sale attempt in August collapsed at a time when the nation’s benchmark Kospi index fell 12 percent ― its biggest one-month drop since October 2008. This year, the Kospi had climbed almost 12 percent by the middle of March, before giving up those gains as concerns that North Korea may begin an attack and deteriorating conditions in Europe shook investor confidence again. The gauge is now down 0.2 percent since the end of 2011, prompting skepticism among analysts including Michael Na.

“I don’t see what has changed so much this year from when they made the previous attempt,” said Na, a Seoul-based analyst at Nomura Financial Investment Korea Co. “No clear potential buyers are on the horizon now.”

Kim says Korea has done much to bolster stability. Regulators last year clamped down on ailing savings banks, slowed the growth in household debt, brought forward a deadline for banks to reduce their loan-to-deposit ratios, and urged lenders to secure more foreign-exchange liquidity. The financial sector has matured with the merger of some banks, he said.

“The stability of our banking system and financial markets is very high,” said Kim, who has held key roles at the finance ministry and regulator since the Asian currency crisis.

He was the director in charge of foreign-currency funding at the finance ministry during the 1997 meltdown. He went on to become the vice finance minister in 2007, according to the regulator’s website.

Woori was established in 2001 as the nation’s first financial holding company following the combination of banks and financial firms that had been rescued by the government as part of a 156 trillion won bailout of the industry. The stock was listed on the local exchange in June 2002 after being sold in a $500 million initial public offering for 6,800 won apiece.

The mandate for Daewoo Securities Co., JPMorgan Chase & Co. and Samsung Securities Co., which had been hired in September 2010 to help sell the Woori stake, has been extended to this year’s proposed transaction, Public Fund Oversight Committee Secretary-General Kim Yongbeam confirmed on April 4.

Hana Financial Group Inc.’s acquisition of Korea Exchange Bank from Dallas-based Lone Star Funds this year and NH Nonghyup Financial Group Inc.’s creation of another bank holding company signal that a “new competitive structure is emerging,” helping to heighten interest in Woori, Kim said.

The government will keep the latest effort to sell the stake ― in what will probably be the biggest deal in Korean’s financial industry in decades ― open to both domestic and foreign bidders, Kim said. Regulators will consider offers from banks as well as private-equity firms, he said.

Lone Star exited its 2003 Korea Exchange Bank investment amid public backlash over the more than $4 billion in profit taken by the U.S. private equity firm. Lone Star’s attempts to sell the stake since 2006 were derailed by courts, regulators and lawmakers stemming from foreign ownership rules. The 51 percent stake sale to Hana was delayed by more than a year after an agreement was reached because of the legal wrangling.

Woori may also benefit from loosened state control and more independent management, Kim said. The government’s controlling stake allows it to set targets for profit and asset quality. “Privatizing Woori as soon as possible is crucial to securing its competitiveness and harnessing its growth potential,” Kim said. “That’s the goal under state law.”

Potential buyers from Korea have yet to show their hands.

KB Financial Group Inc., which has been touted as a bidder since the first attempt to sell the stake in 2010, “can’t afford” to purchase Woori, Chairman Euh Yoon-dae said on April 25. His comments followed a report in the Maeil Business Newspaper on April 3 that KB was considering a merger with Woori.
KB will instead bid for ING Groep NV’s Korean insurance businesses to expand into the non-banking sector, Euh said.

KDB Financial Group Inc., a state-owned firm that’s planning its own initial public offering this year, also won’t join the auction for Woori, Vice President Chu Woo-sik told reporters on May 15.

Kim says potential bidders are being coy because they don’t want to drive up the price for the stake.

“The time is ripe to proceed with the sale,” he said. “I’m quite hopeful this time.” 

(Bloomberg)