Gov’t, co-op wrangle over stocks

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Gov’t, co-op wrangle over stocks

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With just a week left until the complete reconfiguration of the nation’s largest agricultural co-op, stakeholders are still wrangling over how the government should contribute part of its funding.

The separation of the financial and industrial operations of the behemoth co-op National Agricultural Cooperative Federation, or Nonghyup, is set to take place on March 2. But Nonghyup and state officials have yet to settle where 1 trillion won ($888 million), or 20 percent of the government’s pledged support, will come from.

With time running out, the co-op could be due for a tax payment of more than 12.5 billion won - which would have been avoided if an agreement had been reached sooner.

Following a dragging, 17-year-old debate, a related law was finally revised last year to facilitate the spinning off of the two holding companies, one financial and one industrial.

This was intended to correct the co-op’s skewing toward banking operations at the expense of agricultural distribution, and bolster expertise and oversight in both areas.

Under the law, the government had committed to doling out 5 trillion won to support Nonghyup’s transformation. Recently, however, both parties agreed that the government would cough up just 80 percent of this by paying the interest on 4 trillion won worth of Nonghyup-issued bonds from the state budget over five years.

The remaining 1 trillion won would be taken care of by government-owned stocks. In return, Nonghyup agreed to give the government a stake in its new financial holding company.

The key point of contention has been what kind of stocks would make up that 1 trillion won.

On the one hand, Nonghyup has asked for stocks in the Korea Development Bank (KDB) or Industrial Bank of Korea (IBK), which are or soon slated to be publicly traded and can be easily converted into cash assets.

However, government agencies maintain that, by law, banks cannot own more than a 5 percent stake in another bank, and that the planned move could jeopardize the finances of the state-run Korea Finance Corporation (KoFC), which will be handing over the stocks.

The KoFC, which was spun off from KDB in 2009, pays annual interest of 600 billion for KDB-issued bonds valued at 15.5 trillion won.

“We would prefer that Nonghyup accept the entire 1 trillion won in [highway builder and manager] Korea Expressway Corporation shares,” said a high-ranking FSC official, adding that a compromise of a mix of the above three stocks could be possible.

Additionally, the stake the KoFC stands to gain in Nonghyup’s new financial holding company is made up of preferred stocks without voting power. Moreover, Nonghyup has recently moved to limit the KoFC’s dividend rate to less than 1 percent of total investment per year.

Because Nonghyup’s exemption on taxes related to stock transactions and registration expires on March 1, the delay is expected to cost Nonghyup - and its 2.45 million co-op members - some 12.5 billion won. The spokesperson said the co-op will push for a waiver.


By Lee Jung-yoon [joyce@joongng.co.kr]

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