South Korea fund could join KDB in Lehman deal

SEOUL (Reuters) - South Korea's military savings fund would consider joining Korea Development Bank in a bid for Lehman Brothers LEH.N if KDB made such an offer, as now appears a good time for U.S. investments, the fund's chairman said on Wednesday.

State-owned KDB confirmed on Tuesday it was in talks with the struggling U.S. bank over a possible joint investment with other Korean banks. But South Korean banks rumored to be joining the KDB bid consortium denied on Wednesday they were involved.

"We have not received any proposal from KDB. It would be a thing that is worth considering," Cho Young-ho, chairman of the Military Mutual Aid Association, told Reuters in an interview, when asked whether it was interested in joining bidding for the U.S. bank.

"We judge now is a good time to invest. If we form a consortium with other (domestic) savings funds, we will have a substantial capability to invest," he said.

Cho, a retired lieutenant general, added that South Korean savings funds could mobilize up to several hundred million dollars in aggregate for a big deal such as Lehman investment.

Lehman, which has racked up crippling losses and still bears more than $60 billion of mortgage and commercial real estate exposure, is under pressure to raise capital.

The military fund, with $7 billion in assets, is a major South Korean financial investor in M&A deals, behind the National Pension Service and the Korea Teachers Pension Corp.

The fund, controlled by the defense ministry, has invested 300 billion won ($261 million) in Britain's Thames Water which provides drinking water and wastewater services. The 7 percent stake yields returns of more than 11 percent annually.

The chairman said U.S. assets battered by the subprime meltdown would offer a good opportunity for high returns, and the fund was preferring joint investments in foreign targets.

"We are expecting a great number of good M&A assets to come to the market at home and abroad later this year or the first half of this year."

The fund is also planning to join a strategic buyer for 50.4 percent of Daewoo Shipbuilding & Marine Engineering (042660.KS). Two top creditors are putting up for sale stakes in the world No.3 shipbuilder.

It had bought unlisted South Korean shipyard, Sungdong Shipbuilding & Marine Engineering Co Ltd which is preparing for a public offering.

SECURING MORE LIQUIDITY

The Military Mutual Aid wants to secure more cash and liquidity amid the global credit crunch and slowing economies, while it has been diversifying into energy, resource and infrastructure projects in Laos, Kazakhstan and Russia.

It has been conservative about stock markets this year since it cashed in a big chunk of stocks late last year. Currently, its stockholdings, mostly domestic, are valued at 450 billion won.

Its target annual return is above 9 percent as it offers a 7 percent compound interest to subscribers.

"We will increase equity investment and stock purchases from next year. We will bring up the portion of financial assets to above that of the construction sector by the end of next year," he said.

Currently, financial assets account for 45 percent of the total, with its construction development and investments taking the remainder.

Cho said the fund did not plan to invest in North Korea for the time being, adding that communist North Korea's ambition of unification of the Korean peninsula on its own terms would not change as long as Kim Jong-il stayed in power.

Cho was decorated for catching a North Korean spy in 1995 in a small town southwest of Seoul.

(Editing by Keiron Henderson)