Low stock prices snarl plans for privatization

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Low stock prices snarl plans for privatization

Korea’s depressed stock market has sharply undermined the value of state-owned companies scheduled for sale or privatization, raising questions about the wisdom of putting them on the market.

According to financial industry sources yesterday, stock prices at 27 companies whose top shareholders are either government institutions or public companies have plummeted by up to 40 percent from the end of last year. The benchmark Kospi tumbled by more than 21 percent over the same period, from 1,987.13 to yesterday’s 1,562.72.

During that period, Daewoo Securities saw its share price tumble 39.7 percent, Daewoo Shipbuilding and Marine Engineering fell 24.8 percent and Hyundai Engineering and Construction, 24.9 percent.

Controlling stakes in the three companies are owned by Korea Development Bank. The public bank, also set to be privatized, plans to sell them in the near future.

The falling share prices mean those firms could fetch less than previously anticipated.

This is more serious for companies into which the government injected public funds to rescue them from the verge of bankruptcy, mostly during the late 1990s.

Woori Finance Holdings is one such case. The Korea Deposit Insurance Corporation poured 12.8 trillion won into Woori through late 2000 and started retrieving the injected capital in June 2002.

However, the state-owned deposit insurer has collected only 2.1 trillion won, excluding dividends, so far. The remaining 10.7 trillion won falls to taxpayers.

“Because the government already experienced the hurried sale of financially stricken Korean firms to foreign buyers at below market value in the late 1990s, it will be now closely monitoring market circumstances to look for optimal timing,” said Kim Dong-hwan, a researcher with Korea Institute of Finance.

A desirable scenario would be for the government to sell smaller stakes in the firms initially and seek a majority shareholder when the market improves later, said a banking analyst who asked not to be named.


By Seo Ji-eun Staff Reporter [spring@joongang.co.kr]
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