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Only One Trillion Won Recovered after Investing Six Trillion Won of Public Funds

Only One Trillion Won Recovered after Investing Six Trillion Won of Public Funds

Posted February. 18, 2005 22:44,   


The government will spend 1.65 trillion won in public funds in selling Korea Investment and Securities Co., Ltd. (KITC) to Dongwon Financial Holding at a price of 546.2 billion won. It will also provide around 50 billion won worth of indemnification funds. Accordingly, only about one trillion won is estimated to be recovered out of total public funds of 6.55 trillion won being poured into the KITC.

The Public Fund Oversight Committee (PFOC), an umbrella institute of the Ministry of Finance and Economy, held a plenary session on Friday at the Bank Building in Seoul to approve a proposal for signing a sales contract for KITC stocks and laying out public funds, which was agreed to by the Korea Deposit Insurance Corporation (KDIC) and Dongwon Financial Holding.

As a result, the ownership of KITC will be transferred to Dongwon Financial Holding in March when the selling procedure comes to an end. The end to the process comes 16 months after the government’s decision to sell the firm in November 2003.

The proposal states that the KDIC will inject 1.65 trillion won of public funds through investing 1.05 trillion won in the KITC and buying 600 billion won worth of stocks and bonds owned by the company.

The KITC was co-founded by five banks and 27 securities firms in 1974, and it became insolvent while being mobilized in government measures to boost stock markets. The government provided support in the form of 4.9 trillion won from 1999 to 2000 when the KITC faced a management crisis caused by Daewoo’s bankruptcy after the financial crisis.

“The KITC stocks owned by existing shareholders will be reduced 100 percent before its stocks will be acquired by the KDIC for 1.05 trillion won,” said an official at the PFOC. “Then the KDIC will sell the stocks to Dongwon Financial Holding for an aggregate price of 546.2 billion won.”

The government expects to sell KITC’s assets for 500 billion won after buying them for 600 billion won. With the 546.2 trillion won selling price being added, a total of 1.04 trillion won in public funds is expected to be retrieved.

The PFOC will provide 50 billion won of indemnification funds in case of possible lawsuits brought by investors who suffer losses due to funds managed by the KITC.

Dongwon Financial Holding cannot sell the KITC for the next three years, and can sell less than 50 percent of its shares starting a year later, and only if the selling does not compromise the firm’s management rights.

The landscape of the domestic securities and investment trust market is likely to change with the selling of the KITC. Combining Dongwon Securities and the KITC could create a security firm with a market share ranking of first or second in the market.

Meanwhile, the selling is expected to accelerate the sales negotiations between the KDIC and Hana Bank over Daehan Investment and Securities. Hana bank has been in negotiations with the KDIC since last August with no progress due to their different stances over price.

Chi-Young Shin Ji-Wan Cha higgledy@donga.com cha@donga.com