[Viewpoint] Corporate world up for sale

Byun Yang-ho was once a powerful finance bureaucrat overseeing bank and financial restructuring at the Ministry of Finance and Economy at a time when the country was still struggling from the catastrophic Asian financial crisis in the late 1990s.

In 2003, he was in charge of selling a major bank, Korea Exchange Bank. The bank sat on a mountain of distressed debt after its generous lending to Hynix Semiconductor and Daewoo Engineering & Construction backfired in a cluster of delinquencies.

Korea Exchange Bank became the two ailing companies’ major stockholder through a bailout program that converted debt to shares at 5,000 won ($4.27) per share to help keep them afloat. But their shares floated at around 1,000 won per stock. The bank was eventually put up for sale, but no potential buyers came forward.

Then, an American buyout fund, Lone Star, entered the scene. Byun considered its bid a godsend. He thought he couldn’t have saved the nationwide bank as well as the two major companies if he hadn’t grabbed the chance presented by the U.S. firm.

Never did he imagine the memory chip and construction market would rebound so strongly two years later.

Shares in Hynix and Daewoo Engineering shot up, enriching its major stockholder, Korea Exchange Bank. Lone Star, as a profit-seeking equity firm, then made the lucrative decision of selling the bank to Kookmin Bank and pocketed more than 4 trillion won in net profits from the transaction. The media was frenzied, howling that the deal was a drain on the nation’s capital and a dirt-cheap sell-off.

Byun was named the culprit and put behind bars in June 2006 on allegations of illegal activity involving the sale. Last month, the Supreme Court found him innocent and he was freed after some 300 days in prison. The man, whom many know as a hardheaded professional, mutters now that he wouldn’t have signed the deal with Lone Star if he could turn back the clock.

Old fears loom as the country now confronts another wave of mergers and acquisitions. Daewoo Engineering is back on the sales block again. Its main creditor, Korea Development Bank, handpicked four potential bidders last week, and they were all foreign capital, including a private equity fund. The company’s union filed a complaint with the authorities, opposing any sales that appear to be speculative and hostile. Critics warn that private equity funds tend to exit the country soon after they make gains on their purchase, and others urge us not to forget the lessons from Korea Exchange Bank.

Daewoo Engineering is a lot different than Korea Exchange Bank six years ago. The company is a sound one, ranked third in construction orders from home and first with the most overseas orders.

It has a formidable reputation in the Middle East and North Africa and is on the market largely because its largest stakeholder Kumho Group wants to shake off the debts it built up to buy Daewoo.

This all puts Korea Development Bank in a tight spot. Executives dread the criticism of selling the company too cheaply. “We hope we can find a local buyer,” one executive said. No one wants to be the next scapegoat like Byun Yang-ho. Since his persecution, bureaucrats and financiers sarcastically have been advising one another that it’s best to “hide, stall and pass” whenever they come across a sensitive deal. They mostly want to save their skin and few are willing to put their neck on the line for the sake of the country and the economy.

Hynix Semiconductor, Korea Exchange Bank and Woori Financial Holdings are up for grabs. Smaller companies are gearing up to sell their weaker assets. Analysts expect that mergers and acquisitions deals may top 30 trillion won this year.

We are not alone. The corporate world is on sale around the globe, and predators are moving in. One European bank estimates such buyout capital could reach $10 trillion, which means a lot of money is on the line.

*The writer is the business news editor at the JoongAng Sunday.

by Lee Jung-jae