Watchdog finalizes KDB separation plan

(ATTN: UPDATES with remarks by the watchdog's official in paras 4,8)
SEOUL, July 28 (Yonhap) -- The government will separate the state-run Korea
Development Bank (KDB) into a policy lending body and a holding company in an
effort to spur its privatization, the financial watchdog said Tuesday.

The Financial Services Commission (FSC) said KDB will be split in October into
the two entities -- a policy financing institution to be named the Korea Public
Banking Corp. with 28 trillion won (US$22.6 billion) in assets and a holding
firm, which will retain its banking business.
The government, which owns 100 percent of the lender, will then reduce its stake
in the envisioned holding company within five years to put it in private hands,
it said.
"The watchdog has focused on splitting KDB's assets in a way to smoothly
privatize KDB and to make the policy financing body do its suitable role," Choo
Kyung-ho, director-general at the financial policy bureau of the FSC, said in a
press conference.
According to the separation plan, the government plans to transfer KDB's stakes
in state-run companies and bailed-out firms including chipmaker Hynix
Semiconductor Inc. and Hyundai Engineering & Construction Co. to the policy
financing body.
The holding company will have KDB's three non-banking affiliates and retain KDB's
interests in companies up for sale -- Daewoo Shipbuilding & Marine Engineering
Co. and Daewoo Engineering & Construction Co.
The KDB sale is part of broader plans by President Lee Myung-bak to privatize the
country's state-owned companies and beef up the competitiveness of the local
banking sector. Lee took office in February 2008.
"Details and the timing of the KDB sale will be determined after consulting with
related agencies and considering market conditions. But the government's will to
privatize the lender is unwavering," Choo said.
KDB was set up in 1954 to provide financing to local firms for facility
investment purposes and bailed out financially troubled companies in the
aftermath of the 1997-98 Asian financial meltdown. KDB is estimated to have 172.1
trillion won in total assets as of the end of August, according to the watchdog.
KDB is considering buying a lender in the domestic or broader Asian market to
secure the deposit base before the full privatization. Market watchers say that
the policy lender may target Korea Exchange Bank, controlled by U.S. equity fund
Lone Star Funds.
sooyeon@yna.co.kr
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