Woori Finance mandates ADR

The Korean bank mandates advisors for its level II ADR.

In the next step towards Woori's eventual privatization, the Korean bank appointed advisors on Saturday for its level II ADR. With the decision originally expected on Wednesday, but postponed till Saturday, it was announced that Lehman Brothers and Samsung Securities had won the mandate.

The dominant Korean investment bank and the US firm will introduce the issuer to the US market via a level II ADR. Under this kind of programme, the ADRs are listed on the US securities exchange thereby offering higher visibility in the US market, more active trading, and greater liquidity. Given that they must comply with the full registration and reporting requirements of the SEC's Exchange Act, they are generally viewed as a stepping stone towards a full blown level III ADR in which the issuer can raise new capital.

It was probably no great surprise that either Samsung or Lehman was mandated. In the case of Lehman it has invested in Woori convertible bonds and entered into a joint venture with Woori to buy NPLs from the bank. Indeed, some of the other banks asked to pitch (UBS, CSFB, JPMorgan, Morgan Stanley) last week cried foul that Lehman had in fact written the RFP (Request For Proposals).

However, it turned out that a former Lehman employee - subsequently hired by Woori - had simply copied an RFP he had on his laptop from his Lehman days.

The government, via the KDIC, holds around 80% of Woori, which it must sell by law by the end of 2005. This aggressive timetable and the wishes of Woori staffers has led some to assume that if market conditions permit a level III offering could happen between September and November.

Should the deal not happen before then due to US GAAP accounting, the next window will not open till March 2003, since a full year of US GAAP accounts will be required for 2002 and this normally takes three months to prepare. The likelyhood then is that if market conditions continue to be favourable that a Woori deal will come sooner rather than later.

By getting on the level II ADR, both Lehman and Samsung look to have ensured their spot on the level III ADR too. It is expected that at least one other firm will be added to the level III ADR mandate. The first new equity offering is expected to be at least $1 billion in size.

Aside from ADRs the government is also keen to find a strategic shareholder to take 20% or more of Woori.

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