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Korea First Bank
Why did the Korean government choose New Bridge Capital over Hong Kong and Shanghai Bank Corporation?
The reason why New Bridge Capital was selected over Hong Kong and Shanghai Bank Corporation (HSBC) is because it offered the government more control. Under the deal, New Bridge was going to give the Korean government a 51% stake in the firm. However, New Bridge would have 100% operational control and could determine the management structure / operations of the bank's daily functions. This was a more attractive offer by allowing the Korean government to easily intervene during times of financial crisis. At the same time, it allowed them to sell a portion of their assets and focus on maintaining the majority of control.
HSBC was going to take 100% ownership over the bank during a period of several years. Initially, the deal called for them purchasing...
Over the next four years, the firm would purchase the final 20%. They did have a put back option, which allowed the government to repurchase its entire stake at a premium during this time. Aft this period, HSBC would assume full control and utilize the bank as its own subsidiary.
What motivated them; is New Bridge Capital offered a more lucrative deal to the Korean government. This allowed officials to maintain control and not sell out the entire bank. Instead, they can intervene and monitor its operational control. While at the same time, they are spinning off a percentage of the ownership. This made government officials more comfortable with the deal as they felt that the transaction would partially privatize the entity. Yet, it enabled them to ensure that the bank's activities were not effectively monitored. Under the HSBC proposal, the…
This was a good deal for New Bridge Capital. It allowed them to own a stake in a banking asset, which could increase their bottom line results. While at the same time, they could expand and position, to take advantage of new opportunities inside the growing economies of the region. This is something the firm wanted to do, since it established operation inside South Korea in 1994.
In the case of the government, the deal meant that it could maintain a controlling interest and ensure that the bank's operations were transparent. This made it possible to monitor what was happening and set the policies / procedures from behind the scenes. The deal addressed one of their main concerns, which affected the bank prior to the Korean government nationalizing it (i.e. corruption and illegal activities). If South Korea was to grow, it would require having an open banking system which could adhere to international standards. The New Bridge Capital deal allowed them to sell off of percentage of the assets. Yet, it enabled them to maintain a majority stake and influence what was happening.
The timing of the sale occurred at the right time. This is because the economy was quickly growing and more foreign direct investment capital was coming into South Korea. To ensure that the financial system was prepared for these changes, the Korean government had to shift its policies by spinning off a certain percentage of their ownership. This transaction allowed them to achieve these objectives.
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