Hong’s privatization pitch stirs controversy

GNP leader proposes public offering of bailed out firms’ shares without premium


Recently elected Grand National Party leader Hong Joon-pyo has proposed privatizing government bailed-out companies through a public offering of discounted shares with no management premium, prompting further populist controversy.

If the so-called “citizen shares” are sold to low-income earners, some 6 million people are expected to benefit, according to Hong.

Having built up a populist image by suggesting “half-priced apartments” and a 30 percent cap on loan interests, Hong this time proposed the public offering of Woori Financial Group and Daewoo Shipbuilding and Marine Engineering.

State-funded Korea Deposit Insurance Corporation holds a 57-percent controlling stake in Woori Financial, while some 50 percent of Daewoo Shipbuilding shares are held by the state-funded Korea Development Bank and Korea Asset Management Corp.

“Public stakes in companies bailed out by the government should be returned to the people rather than sold to large businesses,” Hong said in a meeting of senior GNP lawmakers Wednesday.

“When POSCO shares were sold to the general public in 1988, the discount rate was 63.5 percent. In the case of Korea Electric Power Corp. in 1989, the discount rate was 43.5 percent, offering a good chance for mid- and low-income classes to increase their wealth.”

Hong is reportedly set to deliver to the GNP’s policy committee the plan to privatize bailed-out companies by offering citizen shares.

The party is considering a plan to set aside half of the offerings to the low-income bracket, 20 percent to the employee stock ownership association and the remaining 30 percent as public offerings.

The combined value of the two companies’ shares for sale is expected to reach about 9.16 trillion won, and if they are issued at a 30 percent discount, the government will be able to collect 6.4 trillion won, and the discount benefits for the people will amount to 2.7 trillion won, according to the documents.

There are, however, negative views within the GNP that Hong’s plan is a populist policy aimed at general and presidential elections next year and does not fit the policy goal of retrieving taxpayer money used to bail out the companies.

“If politicians keep talking about how the companies should be sold, the government will be restricted in making its own choices,” said Rep. Yoo Seong-min, a member of the GNP’s decision-making supreme council.

Also, because the “citizen shares” method provides no management premium and offers the shares at artificially lower-than-market prices, it will be harder for the government to recollect the money it injected to save the companies.

One of the purposes of privatization is to find new owners of the companies, but an offering of citizen shares would make it no different from when the government is their major shareholder, critics note.

Earlier this week, Hong moved into the media spotlight by assailing President Lee Myung-bak for his “poor handling of domestic politics” and “superiority complex.”

By Kim So-hyun (sophie@heraldcorp.com)