[Song Seungseop's Financial Light] Why Did KODIT Sell 14.44 Million Shares of Woori Financial?

Finance is difficult. It is filled with confusing terms and complex backstories intertwined. Sometimes, you need to learn dozens of concepts just to understand a single word. Yet, finance is important. To understand the philosophy of fund management and consistently follow the flow of money, a foundation of financial knowledge is essential. Accordingly, Asia Economy selects one financial term each week and explains it in very simple language. Even those who know nothing about finance can immediately understand these ‘light’ stories that turn on the ‘light’ of financial insight.

[Asia Economy Reporter Song Seungseop] On the 8th, the Korea Deposit Insurance Corporation (KDIC), which holds 124.6 million shares (17.25% stake) of Woori Financial Group, disposed of 14.44 million shares (about 153 billion KRW) through a block deal. How did the public institution KDIC come to hold such a large amount of Woori Financial Group shares? And why did they sell the shares, and what exactly is a block deal?

Woori Financial Group was created in 2001 during the process of restructuring insolvent banks. In response to the International Monetary Fund (IMF) crisis, Hanbit Bank, Peace Bank, Kyongnam Bank, Gwangju Bank, and Hanaro Investment & Securities were merged into a single holding company called ‘Woori Financial.’ To do this, the government had to inject a massive public fund of 12.7663 trillion KRW starting from 1998. Because the government invested this capital, KDIC came to hold 100% of Woori Financial Group’s shares.

Woori Financial Group, which was rapidly growing by creating synergies among its affiliates, underwent privatization and dismantling in 2014, and then re-established the holding company in 2018. During this process, KDIC sold some of its shares in Woori Financial Group. This was the government recovering the funds it had used to restructure the insolvent banks.

Status of Woori Financial Group's shareholding and recovery as of June 25, 2019, when the Financial Services Commission announced the public fund recovery plan [Photo by Financial Services Commission]

Then, in June 2019, the Public Fund Management Committee, which manages state-injected funds, announced that KDIC would sell all remaining shares of Woori Financial Group it held after 24 years. The plan was to fully recover all public funds in two to three rounds from 2020 to 2022, selling up to 10% each time. Woori Financial would thus become a fully privatized company.

KDIC’s share sales were expected to proceed swiftly. At the time, the Public Fund Management Committee promised, “Even if Woori Financial’s stock price, which was around 14,000 KRW, falls somewhat, we will proceed with the sale,” and added, “We will focus solely on maximizing public fund recovery and avoid delays in decision-making.” They also mentioned, “We must consider not only direct recovery but also the invisible benefits to the financial market development by privatizing Woori Financial.”

Sale Plan Disrupted by Stock Price Plunge Due to COVID-19

The problem was that Woori Financial’s stock price dropped excessively due to COVID-19. For the government to properly recover public funds, the stock sale price needed to be around 13,800 KRW. However, at the end of March, Woori Financial’s stock price slid to 6,320 KRW. If shares were sold as planned, it would have caused a significant loss to the public funds, so the share sale plan was postponed.

On the 9th, Eun Sung-soo, Chairman of the Financial Services Commission, met with representatives of card companies, capital companies, and savings banks at the Korea Federation of Banks in Jung-gu, Seoul, to discuss measures for the establishment of the Financial Consumer Protection Act (FinaCoAct) and key current issues.
Photo by Moon Ho-nam

Financial Services Commission Chairman Eun Sungsoo recently told reporters, “Due to COVID-19, the stock price fell, so we couldn’t proceed as planned,” and added, “There was a dilemma between whether to sell even at a low price or to wait until the price rises.”

Then, on the 7th, Woori Financial’s stock price hit a 52-week high of 10,850 KRW. As the stock price recovered significantly, the government resumed the postponed share sale. Chairman Eun also explained, “This year, I thought it would be better to sell on a large scale once the price rises even a little.”

The sale method was a block deal (off-hours large-volume trading), conducted through domestic Mirae Asset Securities and Samsung Securities, and foreign JP Morgan, selling to domestic and foreign institutional investors. A block deal refers to a transaction where a seller holding a large number of shares finds a buyer in advance and transfers the shares after market hours.

The sale price was estimated to be between 10,335 KRW and 10,600 KRW, applying a 0 to 2.5% discount to the closing price (10,600 KRW) on the 8th.

This content was produced with the assistance of AI translation services.