Don’t listen to Hong Joon-pyoHong Joon-pyo, chairman of the ruling Grand National Party, suggested that the government sell its majority stakes in Woori Finance Holdings and Daewoo Shipbuilding and Marine Engineering to the general public at a discounted price.
“It is right to share the gains in companies that have been turned around with taxpayer money with the general public,” he said. He argued that shares offered at about a 30 percent discount from current market prices could help common citizens boost their wealth and better distribute wealth.
The two companies also could be finally privatized after delays in finding suitable buyers from home and abroad. Share offerings to the public could also silence allegations of favoritism for certain corporate or foreign capital. So far, these have been the merits of Hong’s proposal.
Now for the downside: The idea, first of all, is against capitalist principles and is simply a bad business move. The government wouldn’t be able to maximize its investments because it would have to settle for less, especially since it would be selling management rights. Posco and KT, which were privatized through public offerings, still suffer because they lack majority ownership.
Moreover, existing shareholders won’t agree to the discounted share offering because it would undermine their stakes’ value. If the shares in the two companies are sold at a discounted 2.75 billion won ($2.6 million) combined - as Hong suggested - about 6 million people would own less than 500,000 won worth in stocks. Given the experience of Posco when shares tumbled after its share offering, individual shareholders would lose more than they would gain by purchasing the government shares.
Selling government stakes in companies is too sensitive an issue to be floated as one of the half-baked populist proposals ahead of elections. We should stick to the original plans, which have been thoroughly studied by experts. The government should maximize taxpayer-funded bailout funds to shore up state coffers and return rewards to the public through budgetary spending. Many are frustrated with the delayed sale of Woori. But it is government inflexibility that is blocking the sale. It should instead ease regulations on industrial capital to enlarge and advance the financial industry. There must be a reason that the U.S. and European governments do not resort to public offerings as a means to privatize public entities. Hong should retract his idea.