Nonghyup, ministry at odds over restructuring fund

Cooperative is in process of drastic restructuring to spin off financial operation into separate unit


The capital owned by South Korea’s state-run National Agricultural Cooperative Federation, or Nonghyup, stood at 16.1 trillion won ($15.22 billion) as of May, sparking fresh debate about how much the government should fork out to help it split up its units smoothly.

Nonghyup is now drawing up a drastic reorganization plan with the related law passed at the National Assembly in March. Once the restructuring is complete, Nonghyup’s financial unit, made up of banking and insurance operations, is expected to have a strong impact on the local industry.

But the outlook remains, at the least, complicated for both Nonghyup and Korean policymakers, as the cooperative’s capital status is constantly changing in a way that forces the amount of necessary funds to be adjusted.

The latest evaluation by PricewaterhouseCoopers Korea was completed on June 22, concluding that Nonghyup’s capital totaled 16.1 trillion won, up about 10 percent from last year. The sizable increase could signal a decrease in the amount of public funds to be injected to Nonghyup, a sensitive issue at a time when the government is trying to tighten its spending.

Nonghyup, however, claimed that the figure is misleading as only 15.2 trillion won could be used for the envisioned restructuring.

“The dividend payout of 300 billion won in March this year was not reflected in the latest evaluation, and 500 billion won in the capital is actually owned by the individual cooperatives,” Kim Jang-seob, chief of the management structural reform department at Nonghyup told The Korea Herald. “In addition, 100 billion won is reserved for deferred income tax, so the actual figure should be 15.2 trillion won.”

The total amount of capital for the overhaul is speculated at between 23 trillion won and 26.5 trillion won, and Nonghyup plans to raise additional capital on its own and wants the government to pay up the shortfall that could reach 6 trillion won.

But the newly revealed figure for Nonghyup’s capital is expected to touch off discussions about readjustment. The Ministry for Food, Agriculture, Forestry and Fisheries in charge of setting the policy for Nonghyup’s restructuring is yet to express its position on the latest development.

Nonghyup’s Kim said the figures circulating in the local press are no more than guesswork as the final numbers are set to be confirmed on July 27 when Nonghyup holds a board of directors meeting.

“Both the total amount of capital needed for the restructuring and the details about the government’s support will be finalized on that board meeting,” Kim said.

An important factor that might impose further pressure on policymakers as well as Nonghyup is the tight schedule. The newly revamped Nonghyup is scheduled to be launched on March 2, 2012. To meet the target date, a specific plan should be submitted to the National Assembly by Oct. 2, the deadline for next year’s budget. With less than three months left, the wrangling between Nonghyup and the government over the financial support is expected to intensify further.

Nonghyup, established in 1961 under the Constitution and the Agricultural Cooperative Law to support farmers and develop the country’s agricultural industry, is trying to reconfigure its image and role, but its banking service came under fire due to a hacking incident in April.

By Yang Sung-jin (insight@heraldcorp.com)