Woori Financial Group Launches Full Privatization... Remaining Challenges Ahead

Key Issues Including Non-Bank M&A and Stock Price Support
FSS Expresses 'Uncertainty' Over Decision to Appeal DLF Lawsuit

[Asia Economy Reporter Jin-ho Kim] The financial sector's attention is focused on whether Woori Financial Group will succeed in its 'complete privatization.' This is because the government has expressed its intention to sell 10% of the remaining 15.13% stake in Woori Financial within this year. If the sale is successful, Woori Financial will return to the market after more than 20 years since the injection of public funds.

The challenges facing Woori Financial ahead of 'complete privatization' include strengthening competitiveness in the non-bank sector through mergers and acquisitions (M&A) of securities and insurance companies, as well as boosting the sluggish stock price. However, the Financial Supervisory Service's appeal against the lawsuit result involving Chairman Sohn Tae-seung of Woori Financial related to losses from derivative-linked funds (DLF) raises concerns that governance uncertainties may increase at a critical time before 'complete privatization.'

According to the financial sector on the 20th, the Financial Services Commission held a Public Fund Management Committee meeting on the 9th and announced the sale of a 10% remaining stake in Woori Financial held by the Korea Deposit Insurance Corporation.

The sale method is a 'desired quantity competitive bidding,' where multiple bidders whose bids exceed the expected sale price are awarded shares according to their desired price and quantity in order. This is the same method used in 2016 when shares were sold to major shareholders who initiated Woori Financial's privatization.

However, if effective competition is not established and the bid price falls short of the standard price set by the Public Fund Management Committee, the sale will be converted to a 'block sale' (off-hours large volume trading).

With the final step toward 'complete privatization' underway, Woori Financial is accelerating behind-the-scenes efforts to support this process.

The first task is to strengthen the non-bank business portfolio, including securities, insurance, and cards, to create group-level synergy and a stable profit base. Having successfully completed the acquisition of a capital company and a savings bank last year, Woori Financial is actively seeking other non-bank acquisition targets. Chairman Sohn also emphasized in this year's New Year's address that "to expand the group's growth base, we will expand the group affiliates' portfolio through mergers and acquisitions."

Boosting the stock price is also an immediate challenge for Woori Financial. Although the stock price is not an absolute indicator for recovering public funds, it is an important reference point. If the stock price falls significantly, the government may face controversy over a 'fire sale,' which could delay the sale process.

Chairman Sohn purchased company shares for the 15th time since his CEO appointment on the 13th. The total shares purchased so far have increased to 98,127. This is a representative example of demonstrating his determination to raise the undervalued stock price relative to performance both internally and externally. A Woori Financial official explained, "If the stake sale conducted through the desired quantity competitive bidding method succeeds, it is expected to be an important momentum for stabilizing market supply and demand and achieving the complete privatization of Woori Financial Group, thereby increasing corporate value."

However, the Financial Supervisory Service's decision to appeal the court ruling that canceled the heavy disciplinary action against Chairman Sohn is a factor that increases uncertainty at a time just before 'complete privatization.' Since legal disputes are expected to continue for the next two to three years, there are concerns that governance and management activities could be significantly constrained. A financial sector official said, "With recent stock price recovery and successive good news such as non-bank sector M&A, Woori Financial, which had taken a step closer to complete privatization, cannot avoid the burden," adding, "The appeal could negatively affect the sale process as it may increase uncertainty about governance."