RPT-Fitch: Korea's Woori Holding sale to have delayed ratings impact
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Sept 26 (Reuters) - (The following statement was released by the rating agency)
The Korean government's proposed sale of equity stakes in two regional banks under the Woori Finance Holdings (WFH) group is unlikely to be completed soon. The credit implications for the successful bidders - rated by Fitch - hinge on how the main bidding process shapes up, says the agency.
A cash- or debt-funded acquisition would be likely to have a negative impact on the credit profile of the successful bidders. But the government is at a "preliminary" stage of building a solid level of domestic investor interest. This potentially signals that the authorities are rather price sensitive, and that the main bidding process could take some time to complete.
The likely acquirers may see franchise-value benefits from acquiring one, or both, of these banks. But potential buyers will still face challenges with integration.
Preliminary bidding interest in acquiring equity stakes in Kwangju and Kyongnam is evident, and spans a range of domestic financial institutions. But the certainty of an acquisition will not materialise for at least several months. The agency is not contemplating any rating action until the main bidding process gets under way and the likely acquirers become known - by around year-end or early 2014.
The decision to speed up the longstanding objective of selling equity stakes in the two regional banks is in line with the government's near-term priority of raising cash for welfare initiatives. Moreover, it makes sense to prioritise the sale of non-core operations of the WFH - established in 2001 by the government to consolidate several banks that failed during the 1997 Asian Crisis.
We also believe that governance and operational benefits are likely to follow a sell-down in the state's 57% equity stake in WFH, held through the Korea Deposit Insurance Corporation (KDIC).
Nonetheless, funding strategies and integration challenges will be important determinants of the credit profiles of acquiring financial institutions, alongside the expected franchise-value benefits.
Fitch continues to see the eventual prospect of an outright sale of Woori Bank as even more challenging. In the absence of foreign buyer participation, this is because domestic purchasers of sufficient scale may lack the financial flexibility to make such an acquisition, especially with the tougher Basel III capital standards being phased in from December 2013. We believe there is also a high chance for labour issues to arise, as a domestic merger would result in substantial branch overlap - particularly in the cities.
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