Domestic Capital Encouraged to Take Over Public Firms

With planned measures to improve state-owned corporations, the government and the ruling Grand National Party have begun revising laws to help domestic capital take over public firms more easily.

The party’s policy committee discussed with the Strategy and Finance Ministry revision of some 20 provisions hampering the purchase of state-owned enterprises by domestic capital.

The party said yesterday that it will change many of the laws in this year’s National Assembly plenary session in accordance with the government roadmap for privatizing state-owned companies.

“After privatization, foreigners owned 48.9 percent of POSCO, 52.5 percent of KT&G and 45.5 percent of KT at the end of last year,” said Kim Sung-tae, lawmaker and vice chairman of the committee.

“Our initial goal in privatization was to generate more profits and offer better services to the people, but since privatization increased dividends for foreign shareholders, we needed a revision.”

According to a law on improving the management of state-owned corporations and privatization, Koreans and foreigners alike are limited to 15 percent of voting stocks per person. The law, however, is valid in certain state-owned companies only.

No reverse discrimination legally exists as domestic capital is less competitive than foreign capital in taking over state-owned corporations. Many domestic funds, however, are dominated by foreign capital, pointing to the need to improve the system.

In preparation for privatizing Korea Development Bank and Industrial Bank of Korea, the ruling party is also considering revising a bank law restricting industrial capital from owning more than four percent of banks and bank holding companies.

Also facing revision is the Act on Indirect Investment Asset Management Business, which limits ownership of banks and bank holding companies by industrial capital through private equity funds.

The revisions will enable domestic capital and pension as opposed to foreign capital to acquire domestic financial institutions subject to privatization.

Revisions are being mulled for public companies operating under market rules, including Korea Electric Power Corp., Korea Gas Corp., Incheon International Airport Corp. and Korea Airports Corp.

The same could be done for semi-market-based state-owned enterprises such as Korea Expressway Corp.; Korea District Heating Corp.; Korea National Housing Corp.; Korea Land Corp.; Korea Water Resources Corp.; Korea National Oil Corp.; Korea Tourism Organization; Korea National Railroad Corp.; Korea Resources Corp.; Korea Coal Corp.; Korea Minting & Security Printing Corp.; and Workers’ Accident Medical Corp.

Kim said, “We will seek to lower entry barriers for large companies to acquire state-owned enterprises.”

ditto@donga.com