KAMCO Heals Ailing Firms
Chairman of Korea Asset Management Corp. (KAMCO)
When an unprecedented economic crisis swept Asia in 1997, the government responded quickly, launching a financial reform program.
Public funds were injected to bail out the banks, and aggressive financial restructuring followed. To resolve the non-performing loans (NPLs), the Non-performing Asset (NPA) Management Fund was established, and the Korean government put KAMCO in charge of raising the money and managing the fund.
Eventually, we have raised the 39.4 trillion won NPA Fund through bond issuances, contributions and outside loans since 1997. KAMCO has used the fund to purchase NPLs with a face value of 111 trillion won from financial institutions, helping to improve their fiscal soundness and liquidity.
We have been taking a full charge of resolving and recovering of the fund after acquiring of NPLs was concluded in November 2002. KAMCO had managed to resolve 77.1 trillion won worth of NPLs out of the 111 trillion won through international bidding, mergers and acquisitions (M&As), and asset backed securities (ABS) issuance, recovering 42 trillion won in the process. As a result, 106 percent of the initial government investment in the NPA Fund has been retrieved so far.
In 2006 alone, KAMCO collected 4.9 trillion won from the sale of its equity holdings in Daewoo Engineering & Construction, Daewoo Precision Industries and other firms. Earlier fears over huge losses have been dispelled as we have recovered more money than was originally injected into the fund, minimizing the taxpayers’ burden.
An excess in NPA Fund recovery allowed KAMCO to reimburse the money contributed from Public Funds Redemption Fund. KAMCO’s assets and liabilities were examined in June 2006, and KAMCO was found to have a surplus of 5 trillion won. Thanks to highly efficient NPL resolution, the corporation paid back the government 3 trillion won out of 3.5 trillion won from the Public Funds Redemption Fund in February 2007.
KAMCO recently held the “International Forum on the Non-Performing Asset Fund Management” to mark its successful performance in acquisition and resolution of NPLs during the past decade. The occasion cast a light on the Asian financial crisis as well as on KAMCO during the period of crisis and recovery, which created a successful story of NPL disposal that can be emulated by others at home and abroad.
It is widely recognized that the successful restructuring of Korea’s financial sectors was made possible by the timely formation of massive public funds, the strong determination of the Korean government and public, and KAMCO’s know-how and experience in managing such public funds.
Efficient Disposal of Held Assets The face value of the NPLs remaining in the NPA Management Fund totals 33.9 trillion won, and non-performing loans to former Daewoo affiliates represent 26.3 trillion won of this figure. Major companies, such as Ssangyong Engineering & Construction, Daewoo Shipbuilding & Marine Engineering (DSME) and Daewoo International, have been restructured successfully, and their value has been raised significantly.
KAMCO has the national interest in mind when selling its stake in these companies. We seek to maximize the return of public funds and ensure that the companies can continue to grow over the long term. Ssangyong Engineering & Construction is among the companies in which KAMCO holds a stake that is scheduled for sale in 2007. We expect to recover 900 billion won when Ssangyong E&C and others are sold.
KAMCO obtained 11.5 million shares of the company stock, or 38.7 percent, in a debt-equity swap deal. We will put up our shares, along with the shares held by the creditors, totaling 50.1 percent of total equity, for sale. The sale schedule will be finalized after reviewing the result of the due diligence on the company.
The sale of Daewoo International will take place after providing adequate time to assess the company’s value and improve its performance.
The schedule for selling DSME will be decided after the establishment of an equity sale plans and subsequent negotiations with the sale manager, the Korea Development Bank. The court agreed to allow Dong-Ah Construction Industrial to enter court receivership in January 2007. Therefore the company’s equity shares will be sold under a court-supervised management regime, and that sale is expected in the second half of this year.
Regarding Doosan Infracore and S&T Daewoo, KAMCO completed the sale of its residual holdings on the market after an approval from the Public Fund Oversight Committee. For ordinary loans and restructured corporate loans, we apply the most appropriate methods, which include the exercise of security rights, debt restructuring, and court receivership proceedings.
In June 2006, a new vision was announced as part of an innovation initiative to grow into a trusted public enterprise in the fast changing business environment. We will make an all-out effort to become a global asset management company that recreates value.
The new vision consists of three parts. First, expanding our business domain to generate asset value and re-create customer value. Second, providing a unique set of services based on world-class operational efficiency and professionalism. Third, engaging in a broad range of activities, including NPL resolution and government-commissioned asset management.
We will approach the new vision in three stages, starting with the restructuring of mainstay businesses. Then, the portfolio will be expanded, and KAMCO will move into overseas markets. Four main strategies will be implemented further to help KAMCO generate a total of at least 1 trillion won in annual sales by 2010 by increasing work productivity, elevating service quality, as well as developing income models for the revenue structure and new businesses.
We will also expand the business domain to secure the platform for mid-and long-term growth and the core competences to enhance work competitiveness. This year, KAMCO is making the utmost efforts to ensure customer satisfaction in public services like managing state-owned assets and disposing of tax-delinquent properties and exploring a new growth engine, while seeking to pursue public interests and profitability.
The company will remain active and enter new areas of operation in the future helping to maintain a sound financial system in Korea. KAMCO expands into acquiring NPLs from non-bank financial firms and savings banks, and providing consulting services on corporate restructuring for companies with insolvency symptoms.
At the same time, we make inroads into overseas NPL investment, while closely working together with domestic financial institutions. This will have a positive effect on the government in reaching its goal of becoming a financial hub as it played a pivotal role in stabilizing the financial industry during the Asian crisis.