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| The headquarters of Seoul Guarantee Insurance (SGI) in central Seoul / Yonhap |
Gov't aims to complete retrieval of public funds injected into SGI by 2027
By Anna J. Park
As Seoul Guarantee Insurance (SGI) is set to go public within the first half of the next year, the company sent request for proposals (RFPs) to several local securities firms earlier this month to appoint main underwriters for the upcoming IPO process.
The IPO decision was made by the government on July 21, aiming to accelerate the retrieval of public money injected into the insurance company so that the government can realize its original plan of completing the retrieval process by 2027.
Altogether, 10.25 trillion won ($790 billion) was put into the company for two years from 1999 during the Asian Financial Crisis to aid the firm's massive payment for guaranteeing corporate bonds. As a result, state-run Korea Deposit Insurance Corporation (KDIC) currently possesses a 93.85 percent stake in the insurance firm.
So far, 4.34 trillion won, or 42 percent of the injected public money, has been retrieved through the insurance firm's dividends. The KDIC has been receiving about 210 billion won, on average annually, as dividends from SGI.
Given that it now only has five years to complete the retrieval of the public money, while nearly six trillion won remains uncollected, the stable annual dividend payment from SGI could not be able to meet the deadline.
Thus, the KDIC decided to take a two-track approach ― receiving annual dividends and selling portions of stakes ― to accelerate the retrieval process. According to the plan, the state-run agency plans to offer 10 percent of its SGI shares during the IPO process during the first half of 2023, while another 34 percent stake will be sold through block deals or open bidding throughout 2025 to 2026.
The KDIC is also considering the option of selling the insurance firm's management right by selling a 50-percent stake for a speedier retrieval of the public money.
The remaining question for the success of the government's public money retrieval plan is SGI's corporate valuation. Previous negotiations to sell the firm in the past all failed, because of a disagreement over the corporate valuation between the KDIC and potential buyers.
The issue of determining the appropriate corporate value of SGI would be an important issue for its IPO process. While the government has to maximize SGI's corporate value to successfully retrieve the public money, current IPO market conditions do not seem to be helping achieve that goal. Also, the government's optional plan of selling the management right might hamper the insurance firm's monopolistic status in the market, further lowering the corporate value.
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