“Privatization of Korea Electric Power Corporation by Selling First And Listing Later“

It is anticipated that the privatization of the Korea Electric Power Corporation (KEPC) is to be concluded as the "sales of shares first and the listing the company afterwards."

According to a Ministry of Commerce, Industry and Energy (MCIE) official, the government originally considered listing the five development subsidiary companies of the KEPC first, and then selling the rest to the private corporation. However, the government recently changed its course to sell the shares by bulk and then to list the companies. Following this, it is anticipated that resistance from those who oppose to the privatization due to the outflow of the national wealth, and from the labor union, which demands the employment succession, would become more serious.

The MCIE plans to decide the sale formula by the end of the year, and to sell one subsidiary company during the latter half of next year. A MCIE official said, "The ministry plans to sell 51 percent of the company`s shares." In terms of the shares owned by foreigners, facility of the development subsidiary company, of which management belongs to foreigners, is likely to be under 30 percent of the total development facilities, and the maximum two subsidiary companies.

The reason that the MCIE switched the formula of the privatization was based on the evaluation that the process of the privatization of the state-run corporation, which took the formula of the national stock, was not effective, as shown in the case of some of the stocks of the KEPC and the Pohang Steel Corporation. Also, the reason for the switch is that if the company is listed in advance, the price is easy to be set according to the changes in the stock market rather than the actual value of the company, and it is more profitable to sell the shares including the management.

The MCIE announced last year that it would list the company in the stock market first. The purpose was that it gave opportunity to most of people through the listing, and that it allotted 20 percent of offering amount to the employees as a form of `our company stocks`. However, after reexamination since this year, the Ministry was reportedly to have agreed to sell first.

Meanwhile, as the government`s formula of the privatization of the KEPC is brought to the light, domestic and foreign companies, which are interested in taking over the subsidiary companies, are expected to move fast.

The U.S. energy expert company Mirant already begun the process of taking over the KEPC`s subsidiary companies by establishing its subsidiary company in South Korea. Texaco of the U.S., Powerzen of the U.K, the EDF of France, SK, Postco, and LG Power have reportedly launched on the process of taking over the companies. It is forecasted that it is possible for the domestic and foreign companies to take over the subsidiary company by forming a consortium due to the huge amount of the asset of one subsidiary company, which amounts to 2 to 5 trillion won.

Sin Yeon-Su ysshin@donga.com