Korean Card Companies Out of Reach to Foreign Investors

Foreign financial companies are rushing to Korea, seeking acquisition of capital-strapped card companies at a lower price.

A high-level staff member of a foreign card issuer said yesterday that “as many as 20 foreign financial companies have visited Korea over the past year as part of market research prior to advancing into the Korean credit card market.”

Most of the prospective investors, however, have scrapped their acquisition plans, facing various stumbling blocks in Korea, such as aggressive labor activities, rigid authorities, unclear scope of non-performing loans, etc.

GE Capital is now seeking M&A deals with three Korean card issuers including Woori card. GE had previously attempted acquisition of Cho-Heung Bank`s card unit last year only to be cut short during negotiations.

Standard Chartered Bank of the UK has been connecting Korean card companies too, aiming to enter the card market in Korea. “Two years ago, we had to give up purchasing plans for too high prices”, said Mike Denoma, Executive Director for consumer banking business at the bank. “Recently however, as the credit card bubble has collapsed, transaction prices have too gone down a good deal,” he said.

Rick Pudner, head of HSBC Korea, also announced his company`s plans. “We are not in practical negotiations yet, but we plan to advance into the card market in Korea through M&As when opportunities arise,” he said.

Citigroup, which had signed a MOU for acquiring Yes Card in September 2001, gave up their overseas investment deal in the wake of the September 11th terrorist attacks in the U.S., but has recently showed renewed interest in Korean card companies. Having acquired Korea First Bank, New Bridge Capital has been keen to buy Korean card issuers.

As it is widely known, a number of foreign financial companies in their contact with local companies, have abandoned M&A plans due to unexpected problems related to procedures.

Recently, over 20 financial organizations abroad, including GE Capital, Standard Chartered Bank, Citigroup, and New Bridge Capital, have visited Korea for market research. Most however, decided to withhold acquisition plans and only five to six foreign banking companies are currently running task forces in Seoul, waiting for better opportunities to arise. It was not long ago when a major Australian bank, after visiting Korea, gave up investment plans due to labor problems.

A CEO at a foreign card company said: “Foreign investors are hesitant to invest in Korea because their hard-earned management rights through negotiations can be challenged at any time by the labor unions.”

On top of that, excessive regulations of government authorities are seen as the main hurdle for foreign investors. Foreign investors explained that Korean authorities have even gone so far as to set proper levels for allowance of bad debts and that the exact amount was too difficult to estimate.

The attachment of local companies on their internal management rights also hinders foreign investment in Korea. “GE Capital virtually gave up its deal with Woori Card as the company was too firm on its management rights,” said one industry insider. “GE is now engaged in other negotiations with two local card issuers.”

Chi-Young Shin higgledy@donga.com