Woori Sale Seen Succeeding at Last With Breakup: Real M&A

South Korea may finally succeed in its fourth attempt to sell Woori Finance Holdings Co. -- this time by breaking the lender into pieces.

The government, which owns 57 percent of the nation’s largest financial group, plans to split it into three divisions and start an auction this month. A collection of banks bailed out after the 1997 Asian financial crisis, Woori Finance trades more cheaply relative to its net assets than any local peer, according to data compiled by Bloomberg. Broken up, the group may fetch $10.2 billion, 36 percent more than its market value yesterday, said Nomura Holdings Inc.

After three failures since 2010, the state now has its best chance of selling the Seoul-based company because the separate divisions will attract a wider array of bidders, said CLSA Asia-Pacific Markets. Fitch Ratings said the businesses would be more profitable as private entities, and the largest unit, Woori Bank, is already being courted by Kyobo Life Insurance Co.

“This is the first time in a decade that I’ve felt like the plan has a chance,” Shaun Cochran, head of research in Seoul at CLSA, said in a phone interview. “The most logical thing has always been to break it up and find the most interested bidder for each part.”

Past Failures

South Korea’s Financial Services Commission has said it plans to put Woori Finance’s two regional banks, Kyongnam Bank and Kwangju Bank, up for sale on July 15. Woori’s brokerage, asset management and savings bank businesses will also be put on the block. Woori Bank and smaller assets including the credit card division will be sold next year.

“The likelihood of a sale looks much higher this time,” Kim Eun Gab, a Seoul-based analyst at NH Investment & Securities Co., said in a phone interview. “The plans are more detailed and realistic.”

Woori Finance rose as much as 1.9 percent in Seoul today, and ended up 1.4 percent at 10,850 won a share, the highest level in almost a month.

South Korea injected 12.8 trillion won ($11.1 billion) into Woori Finance, which it created in 2001 by combining five banks that were crippled in the 1997 to 1998 financial crisis. The government began to sell down its ownership as soon as the following year in an initial public offering.

For three years, South Korea has been seeking to offload its remaining stake to a single acquirer. The decision to sell the business in pieces was announced on June 26.

Undervalued Units

“In the past, there was no buyer who was willing to buy the big Woori Finance Holdings all together,” Joanne Lee, an analyst at Korea Investment & Securities Co. in Seoul, said in a phone interview. “It was too burdensome.”

Woori Finance yesterday traded at 0.46 times book value, the lowest multiple among seven South Korean banks with a market value higher than $1 billion, according to Bloomberg data.

Valued separately, all of Woori’s components would be worth as much as 11.7 trillion won, or about 36 percent more than the group’s 8.6 trillion-won market value yesterday, Michael Na, an analyst at Nomura in Seoul said in a July 1 research note. Another sum-of-the-parts analysis by Sohn Joon-Beom, at LIG Investment & Securities Co. in Seoul, values the company at as much as 11.5 trillion won.

Kyongnam and Kwangju, the regional banks, may lure KB Financial Group Inc. because they focus on different territories and don’t overlap with KB’s assets, said Kim, the analyst at NH Investment. KB owns South Korea’s largest lender, Kookmin Bank. An official at KB Financial declined to comment.

Potential Buyers

Meanwhile, buying Kyongnam could boost 2013 profit at Busan, South Korea-based BS Financial Group Inc. and Daegu, South Korea-based DGB Financial Group Inc. by as much as 24 percent and 34 percent, respectively, Anderson Cha, a Seoul-based analyst at Daiwa Capital Markets, wrote in a June 26 report.

“We’re carefully considering an option to participate” in the Kyongnam Bank sale, said Park Jae Kyung, a managing director of BS Financial’s strategic and financial planning division.

“This is a rare opportunity, and we’re considering an option to join as well,” DGB spokesman Shin Wan-Sik said in a phone interview.

Woori Bank has a value of as much as 7.76 trillion won, according to Nomura. The division has already drawn interest from closely held Kyobo Life, which may bid for the lender as part of a group, Song Guk Hyun, a spokesman for the Seoul-based company, said last month.

The bank may also appeal to private-equity bidders, CLSA’s Cochran said.

‘Crucial’ Sale

“They could potentially create a bank that has a better long-term record of credit-risk management and makes fewer politically oriented decisions,” he said. “But is there appetite to do it? The government might not find it attractive to have an aggressive player focused purely on economics.”

Foreign private-equity bidders are welcome as long as their funds help develop the domestic market, Sohn Byungdoo, secretary general of the Public Fund Oversight Committee at the Financial Services Commission, said in a July 4 interview. There’s already a lot of demand for some of the assets, which will help create momentum for the Woori Bank sale, as well, he said.

South Korea isn’t likely to recover all of the funds it injected into Woori Finance, even in a breakup. After raising money from share sales and dividends, the state still needs to recoup 7.02 trillion won, CIMB Group Holdings Bhd. said in a June 26 report.

Sohn at the Financial Services Commission declined to comment on the amount the government needs to raise. Still, the commission said June 26 that a “prompt” sale is “crucial.”

President Park Geun Hye is under pressure to raise funds for welfare programs, Heakyu Chang, director of financial institutions at Fitch in Seoul, said in a June 27 research note.

“If they can get this deal done, you are doing less damage to the public balance sheet if you’re spending elsewhere,” said Cochran at CLSA.

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