South Korean Government to Sell State-Owned Companies

By Seyoon Kim

Aug. 11 (Bloomberg) -- South Korea said it will sell or merge 41 of the nation's 319 state-owned companies as part of President Lee Myung Bak's pledge to make government-run firms more competitive.

The plans include selling a 49 percent stake in Incheon International Airport Corp. and part of Industrial Bank of Korea and its affiliates, the finance ministry said in a statement in Gwacheon today. The government also said it would merge Korea National Housing Corp. and Korea Land Corp.

The proposal is part of President Lee's drive to introduce more efficiency into Korean companies and spur growth in Asia's fourth-largest economy. The plan stops short of including the nation's biggest state-owned energy companies, Korea Gas Corp. and Korea Electric Power Corp., amid concern that selling the utilities would hurt Lee's popularity and raise energy costs.

``In the longer term, the privatization will benefit companies and consumers,'' said Kim Jae Eun, an economist at Hana Daetoo Securities Co. in Seoul. ``But President Lee is starting the first phase of privatization with caution, as he needs to consider the public opinion and his popularity.''

Today's announcement includes plans to sell stakes in 14 companies that are now owned by state-run financial institutions including the Korea Development Bank and Korea Asset Management Corp. Among the 14 are Woori Finance Holdings Co., Daewoo Shipbuilding & Marine Engineering Co., Ssangyong Engineering & Construction Co. and Daewoo International Corp.

Further Sales

The government will announce further plans to sell or merge as many as many as 100 companies by early September, Vice Finance Minister Bae Kook Hwan told reporters in Gwacheon. South Korea also may sell a further holding in Incheon International Airport, in addition to sale of the 49 percent stake announced today, Bae said.

Some government-owned companies ``have low productivity and excessive wages and employee benefits,'' the ministry said in the statement. ``Improving the management of the state-owned companies will ensure better-quality public services.''

The ministry estimated improved efficiency will save the government about 2 trillion won ($1.9 billion) a year.

The electricity, gas, water and medical insurance sectors were excluded from the plan ``on concerns about rising charges,'' it said. South Korea on July 22 scrapped plans to sell Korea Gas and Korea Electric because of public concern that the sales would increase fees and layoffs at the utilities.

Voter Backlash

Lee, who took office in February, saw his popularity plunge by more than half in two months after announcing in April that his administration would resume U.S. beef imports.

The government will boost investment in companies including Korea National Oil Corp. to increase their focus on overseas natural resource projects, the ministry said. Korea Tourism Organization will sell its duty-free shop business.

Korea Real Estate Investment Trust Co., Korea Asset Investment Trust Co., Korea Construction Management Corp. and New Seoul Country Club are also among the companies being sold.

The government plans to hold public hearings to discuss further details of the sales and submit a bill to the National Assembly in September.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net