Invest Korea boss backs HSBCÆs bid for KEB

Chung Tong-soo, the head of Invest Korea, says he hopes HSBC's bid will get regulatory approval ôsooner rather than laterö.
In a recent interview with FinanceAsia, the head of Invest Korea welcomed HSBCÆs announcement that it will buy Lone StarÆs controlling stake in KEB. ôI am happy to see that HSBC announced an agreement to buy Lone StarÆs KEB stake û even though it still has to go through a government approval process,ö says Chung Tong-soo, Invest KoreaÆs boss. ôIt may take time, but I think it is going to happen. I hope HSBC will be able to acquire KEB.ö

Chung, who became the boss of Invest Korea last year, added that he hoped regulatory approval would be given, "sooner rather than later".

HSBC appears to be confident that the approvals û from the Financial Supervisory Commission and the Fair Trade Commission û will come through too. Indeed, the press release it issued last week states that if the $6.3 billion deal does not complete by January 31, then its purchase price will increase by $133 million. This basically amounts to a penalty clause if HSBC is not able to get all the relevant approvals in fairly short order.

However, a week before HSBCÆs press release, the regulator had made it clear that the approval process may not be quick. In late August, the Financial Supervisory Service deputy governor Kim Dae-pyung said that it would not start the approval process for the (then) prospective deal until the Supreme Court had passed its verdict. Without regulatory approval from the FSS, HSBC cannot buy the 51% stake. And no one knows when the Supreme Court will give its verdict.

Chung, whose agency is responsible for promoting FDI investment in Korea, says a quick approval of HSBCÆs bid will be a boost to KoreaÆs image as a place that welcomes foreign investment. ôAny time a major international player like HSBC comes to Korea and makes a significant acquisition, it adds to the openness of KoreaÆs economy,ö says Chung. ôHSBC will also help the Korean financial services sector to improve it services.ö

In fact, Chung has made a special point since taking office of targeting investment from foreign financial services firms. ôOver the past 10 years, more attention was paid to attracting investment in the manufacturing sector. Since I took over last year, I have increased our attention on financial services and other services. We will continue to get FDI in the manufacturing area, but relatively speaking we are further behind in the key service sectors and we are devoting more of our attention to strengthening our efforts in the services sector.ö

Chung, however, can only advocate the deal from the sidelines. His agency has no regulatory power to effect the outcome. ôWe are not a government regulatory body. We are an investment promotion agency. So we can only express our hope that the deal will be approved, sooner rather than later. But we do not have a role in the approval process. The FSS is the sole regulatory body that will make the decision in due time.ö

However, the resolution of the Lone Star case will clearly make his life easier. The negative publicity from the case, and the attendant media stories about anti-foreign investor sentiment in Korea, have made the country a tougher sell for Chung and his team.

ôWe are at the tail-end of the Lone Star case, and its resolution,ö says Chung. ôIf for some reason the HSBC deal cannot be consummated, there will be some other entity willing to buy it. Once the Lone Star deal is done, I donÆt expect to see another case like it, hopefully, forever. This is one of the last remnants of the deals that happened in the aftermath of the financial crisis. The timing and the size of the Lone Star deal, and some particularities, all came together to bring problems for Lone Star. But I believe this is a unique case.ö

Chung, whose agency was created in 1998 and rebranded as Invest Korea in 2003, adds some perspective: ôBut even after all the brouhaha about Lone Star, people sometime forget how open the Korean financial services industry is already. Citi and Standard Chartered have already acquired major banks in Korea, and HSBC will be following in this trend. Foreign investment banks and foreign insurers also play significant roles. And the Korean equity market has one of the highest percentages of foreign ownership in the world. So Korea is already an open market, and one which has produced strong returns for investors.ö

He also says it is wrong to say there has been a drop-off in FDI into Korea as a result of perceptions of an anti-foreign backlash. ôIf you look at the amount of foreign investment between 1998 and 2006, it was about four times the amount of that received between 1962 and 1997. So the order of magnitude is substantial. In the last four years we have been averaging $11 billion every year. FDI has been stable, although from 2005 to 2006 there was a $400 million decline. But one year doesnÆt make a trend.ö
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