South Korea Raises $250 Million in Policy Bank Share Sale
The South Korean government managed to sell down its stake in Industrial Bank of Korea by 4.2%. The sale raised around $250 million, which is double of what was originally expected. This sale is good news for the government of President Park Geun-hye because he has pledged to help individuals who are financially troubled as well as small businesses. This sale is expected to help secure budget revenue in addition to furthering stake sales in the following year. It also helps by releasing more liquidity into the market. In mid-2011, the government had failed at its attempt to lower the ...view middle of the document...
55 billion) this year. Economist at HI Investment & Securities in Seoul, Park Sang-hyun, believes that global trade will remain weak for at least the first two quarters of the upcoming year because any recovery in the big economies will mostly be led by consumption of small items rather than machinery and investment goods.
Before the recent IBK stake sell down, the Ministry of Strategy and Finance came to own the shares of IBK in 2008 when the government increased IBK’s capital by granting the shares. The block trades of IBK come as the main KOSPI market trades are at its highest level in over two years. The KOSPI ended at 0.2% at 2056.12 on Tuesday, its highest close since August of 2011. The strong foreign investor appetite for cheap stock has aided in the rise of the KOSPI market trades. Since July, foreign investors have consumed about $13.5 billion of stocks listed on the KOSPI.
iii) Analysis and Comment:
The recent $250 million sale of shares in IBK is certainly a win for South Korea, however, it is only the start of what is needed. The government of South Korea sold the stakes of IBK in efforts to raise necessary revenue to meet its growing fiscal need. The government’s intentions to sell down its shareholding in Industrial Bank of Korea to 50% is putting South Korea on the right track during the economic slowdown that it is facing. However, selling down its shares from 68.8% to 50% is not going to repair everything for South Korea.
The Ministry of Strategy and Finance will have a 90-day-lock-up before it can again attempt to further sell its stake in IBK. While the recent sale of shares went extremely well, it is not guaranteed that the next stake sale will be as successful. IBK stake sales in the past have failed due to unfavorable market conditions. When the government of South Korea tries again after next March to sell down its shares, it is unsure at the moment as to how the sale will go. This is why the ministry will be closely monitoring stock market conditions before it attempts the sale next year. If the government can cut its shareholding in IBK to 50% then about 1.7 trillion won in non-tax revenue will be raised. The ministry said that its sale price is higher than the average purchase price of 7,968 won apiece based on its money injection into the bank over the past five years. The price is still lower than the recommended amount of 12,000 by a committee comprising of government and private-sector experts.
The sale of the government’s stakes in IBK for the first time in seven years allows the government to secure some capital to make up for the shortfalls in revenue. It also creates a favorable market environment for the sale of the remaining stake in the future. There are some concerns that the sale of IBK by the government could mean a change...