KDB set to make first move toward privatization

SEOUL, Oct. 27 (Yonhap) -- South Korea's state-run Korea Development Bank (KDB)
is set to take its first step towards privatization with the institution to be
separated into a policy lending body and a holding company, financial regulators
said Tuesday.

KDB, 100 percent owned by the government, was set up in 1954 to provide financing
to local firms for facility investment purposes and played a key role in bailing
out financially troubled companies like Hynix Semiconductor Inc. in the aftermath
of the 1997-98 Asian financial meltdown.
State regulators said the bank is poised to implement long-term changes to become
a global investment bank that can compete with foreign lenders. KDB's assets
stood at 172.1 trillion won (US$146.1 billion) as of the end of August.
The sale is part of broader plans by the government of President Lee Myung-bak,
who took office in February 2008, to privatize a swathe of the country's
state-owned companies and to beef up KDB's competitive edge in the financial
sector.
As the first step in the privatization, the bank will be split on Wednesday into
two entities -- a financial institution to be named the Korea Finance Corp. that
provides so-called policy loans and a holding firm, which will retain its KDB's
commercial banking business.
Once the separation takes place, the government will start to reduce its stake in
the envisioned holding company within five years so it can be turned over to the
private sector. The new Korea Finance Corp., which is expected to have 28
trillion won worth in assets, plans to become a dedicated policy financing agency
that provides supports to smaller firms and nurturing new growth engines.
KDB said it will strive to become a global top 20 player by 2020 by making
inroads into the large Asian market.
KDB Chairman Min Euoo-sung, who was recently designated as president of the
holding company, said that the bank will seek to list shares of the holding
company on the Seoul bourse in 2011 and on overseas stock markets in 2012 in a
bid to accelerate the privatization.
"Once the holding firm is launched, the new entity plans to craft measures to
secure a strong deposit base by pursuing mergers and acquisitions," Min told
lawmakers last week. "Takeovers of a bank at home or abroad can be one such
option."
KDB has raised funds relatively easily as the government provides its payment
guarantee to bonds sold by the lender, but as the bank prepares for
privatization, procuring fresh funds can become critical for growth.
Market speculators have forecast KDB may seek to buy Korea Exchange Bank,
controlled by U.S. buyout fund Lone Star Funds.
Min told reporters in May that KDB is considering acquiring a lender in the
domestic or Asian markets, adding that a possible takeover would come before the
government starts to sell the state-run lender.
sooyeon@yna.co.kr
(END)