Competition for Mergers and Acquisitions of Promising Companies

A new system will be introduced that will allow Korean industrial capital to equally compete against foreign capital for mergers and acquisition (M&A) opportunities when promising companies are offered for sale.

In addition, intense efforts to restructure non-monetary institutions such as mutual savings banks and credit unions will be made. And businesses will be relieved of much of the burden of going public.

The above plans are the most important part of the Financial Supervisory Commission’s (FSC) main project reported to President Roh Moo-hyun on March 11.

The Commission decided to create the new system, in which domestic industrial capital including manufacturers can actively bid for businesses with prospects. The purpose is to minimize the negative effects of foreign capital flowing into the Korean market and to stop controversies over reverse discrimination against domestic capital.

The Commission’s action draws attention because it is linked to loosening the rules that cap large corporation’s investments and ownership of shares in banks. The business circle has called for such a relaxation.

In a press briefing held after his business report to the president, FSC Chairman Yoon Jeung-hyun explained, “The government and the financial authorities have been discussing the adverse effects of foreign capital coming into the domestic market. It’s not reasonable to put a distinction between capital according to nationality, but it’s just as bad to discriminate against domestic capital.”

Currently, the government and creditors are promoting the sale of Woori Financial Group, LG Card, Hyundai Engineering & Construction, Daewoo Engineering & Construction, Ssangyong Engineering & Construction, Hynix Semiconductor, Daewoo International and others.

Furthermore, the FSC will encourage private equity funds (PEF) and arrange so that pension funds can be invested in corporate M&A. The Commission agreed to launch investigations to find out who finances big shareholders’ take-over of mutual savings banks. The step aims at preventing non-monetary institutions, a source of recent controversy, from becoming unviable.

Chairman Yoon said, “Institutions with good records will be given more assistance, such as a higher limit for loans for the same person. But agencies with weak financial structures will be given warnings of correction in a timely manner. We will try to get them to pursue stronger restructuring efforts.”

In an effort to encourage more businesses to go public, the FSC decided to ease the fiscal regulation and remove part of the obligation of public notice on the part of small- and mid-sized companies.

Ki-Jeong Ko koh@donga.com