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Sale of Seoul Bank poses a quandary

The Korean government wants to sell Seoul Bank to a blue-chip foreign strategic investor. But the likes of HSBC aren’t interested. So how far should the government compromise and maybe encourage a private-equity fund? The problem is that in the run-up to an election, the government is hemmed in by the favourable deal it struck with Newbridge, which was widely ridiculed by the local media.

After seven months, Seoul Bank stands forlornly with a for sale sign still hanging heavily around its neck. And despite the odd investor having a sniff around its books, none has come close to signing on the bottom line.

The government wants foreign investors to come in but has become wary and choosy. It would prefer a large strategic investor such as HSBC to put in an offer, but so far only seems able to attract the private-equity funds. It's an alternative disliked not only by the government but also by the incendiary media. Elections are around the corner and the government doesn't want to face the charge of selling out to the vultures yet again. The terms of the deal negotiated by Newbridge Capital when buying Korea First Bank still leave a bitter taste. The problem is that any foreign investor considering Seoul Bank, be it a bank or a private-equity fund, will demand the same kind of deal.

It is now only the twelfth largest bank in Korea, down from ninth position last year. Its assets shrank over 20%. Time is running out for the bank. And many say it is teetering on the edge, about to be tipped into Woorie Financial Holdings, known locally as the toxic waste dump, an asset management company already struggling to cope with patients such as Hanvit Bank.

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