UPDATE 1-Proceeds row may delay S.Korea bourse IPO

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(Adds quotes, more details)

By Kim Soyoung

SEOUL, March 6 (Reuters) - The Korea Exchange's (KRX) $700 million initial public offering may be delayed into the second half of this year by a dispute over the government's share of the proceeds, a source involved in the deal said on Tuesday.

The recent downturn on global stock markets could also be a factor in the listing delay for Asia's fourth-largest bourse, which had planned to come to market in May, the source said.

The possible delay is the latest roadblock to the bourse's hope of expanding in the region by going public and underlines unique South Korean government pressure to damp down perceived profiteering.

The bourse had already pushed back the listing from 2006 to the first half of 2007 due to disagreement with South Korea's finance ministry over who would supervise the exchange and how the money raised would be used.

South Korea privatised the KRX in 1988, selling its entire stake to local brokerages and futures companies, but the bourse remains dogged by allegations of profiteering from public assets.

According to the source, the finance ministry is demanding donations of up to $400 million - more than half the $700 million the KRX is expected to raise - facing stiff opposition from the brokerages that control 89 percent of the bourse.

"The finance ministry wants as much of the (IPO) proceeds as possible, while brokerages want to offer as little as possible," the person told Reuters, asking not to be identified.

"If they keep failing to narrow differences, the KRX cannot file a listing application in March as initially planned and a first-half listing would be difficult."

Asked whether the current turmoil in global stock markets would affect its listing plan, the source said: "The KRX can't ignore stock market conditions. It will review the listing timing again once hurdles over the size of donations are cleared."

Lee Hyung-Joo, a finance ministry official in charge of the project, confirmed talks with shareholders about the size of the donation but would not say how much the government was asking for.

The KRX has said before it will offer up part of the IPO proceeds, possibly setting up a non-profit foundation aimed at developing the country's capital markets.

The bourse operator is selling 20 million shares, or half its enlarged share capital, in what could be one of South Korea's biggest listings for 2007.

Unlike Hong Kong Exchanges and Clearing Ltd. (0388.HK) or Singapore Exchange Ltd. (SGXL.SI), the KRX has so far failed to internationalise. Despite aggressively wooing foreign firms, especially from China, none are yet listed on the bourse.

It believes going public and allying with other exchanges will help encourage overseas companies to list in Seoul.

Daewoo Securities Co. (006800.KS) and Korea Investment & Securities Co. are joint underwriters of the IPO.

((Editing by Keiron Henderson & Ian Geoghegan; soyoung.kim@reuters.com; Reuters Messaging: soyoung.kim.reuters.com@reuters.net;+82-2-3704-5643)) Keywords: KRX IPO/

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