KDB's Huge Reform

Bank to be turned into a financial holding firm with foreigner as CEO

The Korea Development Bank will be reborn as a private financial holding company when the reform plan being drawn up in the hands of the Financial Services Commission is completed this year.
FSC in a report to President Lee Myung-bak said KDB will be privatized in the next three years. KDB Gov. Kim Chang-lok resigned from the bank.
The core of the change will be changing its management structure to a civilian one led by the Ceo selected by its civilian stake holders or investors, not appointed by the financial authorities as in the past.
An outline of the plan, according to sources close to the FSC said a KDB holding company will be set up first with KDB, Daewoo Securities, KDB Capital and KDB Asset Management as its affiliates. The projected KDB holding would also set up Korea Investment Fund to inherit the role played by the KDB as a lender of government policy funds.
The KDB holding would have a total capital of 30 trillion won and before selling its stakes to private investors, a foreign investment bank like Goldman Sachs will be invited to invest in its stakes to assure private investors that they can really invest in the KDB holding very sure that it will not be swayed by whims of the financial authorities.
The financial sources said, "The idea is similar to what the Chinese government went through when it privatized its state banks and listed them on the stock exchanges."The KDB holding will also have a foreign Ceo with an extensive experience in international finance. Departing from the past practice of appointing a former government official to lead the bank in what is euphemistically called, 'a parachute appointment.'The FSC's plan was partially revealed during the Presidential inspection of the commission recently. Secretary General Lim Seung-taek reported to President Lee that KDB's managerial structure should be changed first and then be sold because if sold without the change, the potential buyers would only pay for the value of the KDB and its affiliates and a very able foreign Ceo should also be hired to run the reformed KDB to increase the value of the financial holding company.
A foreign IB's participation in KDB would also present an opportunity to lead the KDB to share a global financial network and an access to foreign financial experts, which will make the job of building a financial hub for Northeast Asia in Korea easier, they said.
The FSC plan is to go as far as not only giving the Ceo job to a qualified foreign financial figure, but also fill its board of directors with outside persons with substantial international financial expertise. The commission also plans to set up a system in the KDB to prevent government influence in its management.
The financial sources expect the picture will be more clear when the Korea Development Bank Law will be revised in June in the direction of changing the management structure to be independent from government influence. The deputy commissioner is supposed to have had this in mind when he told the president that KDB's management structure will be changed to one run by civilian financial experts in July.
When KDB is turned into a financial holding firm at the end of this year, it will as its affiliates KDB, KDB Capital, KDB Asset Management, and Daewoo Securities. KDB's stakes in its affiliates will be turned over to Korea Investment Fund.
The KDB holding company will sell up to 49 percent of its stake to investors on a gradual basis until 2012 and be listed on the stock market at an appropriate time, the sources said.
The FSC also has been considering to make block sales of the KDB shares in the hope that the financial regulations will be relaxed enough to allow industrial funds to be invested in financial institutions up to 10 percent of their outstanding shares from 4 percent now allowed. nw