The Korean government can’t seem to make a move in the country’s banking sector without tripping up. Its latest misstep happened this week when it gave confusing signals about a proposed sale of a small part of its 68.6% holding in Industrial Bank of Korea (IBK).
Shortly after the local stockmarket closed on Tuesday, IBK’s investor relations team sent out a two-line email to shareholders and investors informing them that it had been notified of the government’s “intention to execute a block trade”. They were advised to get in touch with the lead arrangers: J.P. Morgan, Bank of America Merrill Lynch, Samsung Securities and Korea Investment and Securities.
Unfortunately, according to a Seoul-based source, the bankers apparently had no forewarning about this imminent sale, although their mandates had been in place for some time. Underwriting agreements hadn’t been signed, there were no price guidelines and the size of the trade hadn’t been determined. Besides, the market was unlikely to be receptive anyway, said the person, who is not connected to the mandated banks.
So, there was no deal after all. But, that didn’t stop IBK’s shares plunging by almost 7%, as traders anticipated that an eventual sale would be priced at a discount.
It looked rather untidy, and perhaps amateurish. Subsequently, government officials spoke anonymously to newswires in an attempt to add some clarity and clean up the mess. Yet, despite those briefings, it remains unclear whether a future block sale would represent 8.4% or 6.6% of the government’s holding.
IBK was set up in 1961 as a policy bank to lend to small and medium-size businesses. The government pumped in W1.3 trillion ($1.21 billion) in the wake of the global financial crisis, and its share price has performed strongly since then.
Meanwhile, the government is struggling to find a buyer for its 57% stake in Woori Financial Holdings and also to offload KDB Financial Group. At the same time, legal and regulatory obstacles continue to prevent the successful consummation of Hana Bank’s already financed merger with Korea Exchange Bank.
Political controversy has surrounded all three of these pending transactions, but the sale of part of its stake in IBK should be relatively straightforward for President Lee Myung-bak’s administration. Assessing the appropriate price, a manageable size and the right time to make the trade are market factors. And the best people to make those judgments are probably the professional bankers in dialogue with key investors.
Issuing a sparsely worded email to potential buyers apparently without preparations in place sends a rather different and unflattering message.
Perhaps appropriately, also on Tuesday, the MSCI declined to include Korea, along with Taiwan, into its developed-market benchmark indices until they both make their currencies fully convertible.