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Additional Injection of 1.3 Trillion Won into DIS

Posted April. 10, 2005 23:13,   


About 1.3 trillion won of public funds will be additionally injected into Daehan Investment and Securities Co., Ltd. (DIS), where 2.8 trillion won of public funds was already assisted.

The Korean government is planning to invest supplementary public funds into DIS to bolster the company’s financial state and sell it to Hana Bank (HB) for 470 to 480 billion won.

On April 10, according to the Ministry of Finance and Economy (MOFE) and the Korea Deposit Insurance Corporation (KDIC), the government and HB, which have been involved in sell-off deals since last August, are winding up their negotiation like this.

A MOFE official said, “DIS’s sell-off deals with Hana Bank will be completed by this month,” and, “The additional public funds will not exceed 1.3 trillion won.”

If Hana Bank will suffer an unexpected loss in the acquisition of DIS, the government will make up for it with the limit of about 30 billion won.

About 11 Percent Return From Total of 4.1 Trillion Won in Public Funds-

KDIC, the main selling body of DIS, will invest about 700 billion won in DIS to enhance the company’s financial condition and will also buy about a 600 billion won stake that DIS possesses.

The Public Fund Oversight Committee of MOFE is to hold a meeting with the Disposal Review Subcommittee late in April to approve the sell-off plan of DIS.

A MOFE official explained, “The reason why 700 billion won is being additionally invested in DIS is that the net working capital ratio should be more than 150 percent to meet the requirements set by the Financial Supervisory Service.”

The spokesperson added, “We are buying a stake in DIS because HB is unwilling to take over DIS’s assets.”

Accordingly, a total of 4.1 trillion won of public funds will have been put into DIS, including its existing 2.8 trillion won stake.

However, the immediate return comes out to only 470 to 480 billion won from the sale to HB, which is at most 11.4 to 11.7 percent of the return ratio.

The payback ratio will rise, if the stakes, which are planned to be purchased, are sold.

Controversy Over Selling Off At Giveaway Prices-

The public fund return ratio of DIS is higher than that of Korea Investment and Securities Co., Ltd.(KIS), which was acquired by Dongwon Financial Holding Co., Ltd. in February.

KIS, into which a total of 6.55 trillion won of public funds was injected, was taken for 546.2 billion won with an 8.3 percent return ratio.

However, critics charge that government is hurriedly selling DIS at the lowest price, because the enterprise value may possibly increase due to improvement in business management performance for the last three years.

Cho Yong-hwa, a senior researcher of Daishin Economic Research Institute, said, “As stock markets are on the upswing and the sale value of securities companies and investment trust companies is increasing, more proceeds from sale will probably be available, if there is enough time for the sell-off deals.”

However, Kim Gyo-sik, the executive office chief of the Public Fund Oversight Committee, said, “There is no guarantee of the increase of the enterprise value because less public funds have been invested in DIS and its financial status is worse than KIS.”

“We are doing our best to increase the yield from sale as much as possible, although the price quoted by HB is 350 billion won,” he added.

Chi-Young Shin higgledy@donga.com legman@donga.com