DEALTALK-State assets could be a tough sell for S.Korea

* Block sale of Woori Finance stake expected this year

* Two power utilities set for Dec IPOs after delays

* Reduced market liquidity, econ concerns may cool demand

* Lack of management rights may put off foreign interest

* Govt hopes to raise $4 bln by 2012 (For more Reuters DEALTALKs, click [DEALTALK/])

By Kim Yeon-hee

SEOUL, Nov 11 (Reuters) - South Korea may have to offer steep discounts to sell key state assets such as bank stakes, to help cut a growing fiscal deficit, while pumping money into the economy to pull it safely out of a global downturn.

The alternative is more delays, but the desperation for funds may be enough to override government fears of criticism for selling state assets on the cheap.

"The government will be more flexible, shifting away from its previous stance that it won't sell the stake below a certain price. That could mean a big discount," said one fund manager at a domestic asset management firm, asking not to be named because he is not authorised to talk to the media.

He was referring specifically to Woori Finance Holdings (053000.KS), which could be among the first to be offered and which has been in government hands since it was bailed out during the Asian financial crisis a decade ago.

The government wants to sell an initial 7 percent in South Korea's third-ranked bank, worth $800 million at current market prices.

It is also selecting an adviser for the sale of 49 percent in Incheon International Airport, the main gateway to South Korea, in a deal worth an estimated $2 billion.

For a related FACTBOX, click [ID:nSEO295382]

The offerings come as South Korea seeks fresh revenue after record spending to stimulate the economy over the past year has sapped state coffers, and as it tries to create more jobs. The government expects the 2009 fiscal deficit to be 5.0 percent of the nation's gross domestic product.

But scaled back lending by banks and concerns about a slowing global economic recovery may reduce appetite for state assets, and some bankers say that could well mean some delays.

Concern about selling strategic assets to foreign investors could also be a barrier in some cases.