A group led by American International Group (AIG) and W L Ross have proposed to increase their investment in three financial units, currently controlled by the Hyundai conglomerate, to W1.1 trillion ($1 billion). If the deal goes ahead after the investors have examined Hyundai SecuritiesÆ accounts, it will give the foreigners the largest stake û 23.7% û in Hyundai Securities, which is one of the most profitable of the Hyundai companies and the countryÆs biggest broker. They will also own more than 50% in each of Hyundai Investment Trust and Securities and Hyundai Investment Trust Management.
The Hyundai Group is trying to chip away at its $48 billion in debts by selling off stakes in some of its companies while cutting the apron strings and giving others more independence. Much of the money coming from the foreign consortium is being directed to prop up Hyundai Investment Trust and Securities, one of the most debt stricken of the companies in the Hyundai group.
The increase in the Hyundai stake comes after AIG sold its stake ináHansol M.com, KoreaÆs smallest mobile phone carrier, in June. AIG, Bell Canada International and Korea'sáHansol Group owned 48% of the company, which was sold to Korea Telecom for W3,000 billion. Michael Chung, analyst at Samsung Securities, says that the money AIG received represented a five-fold return on investment.
ôThis showed that foreign investors can make an investment and cash out,ö he says. ôItÆs proof that President KimáDae-Jung was serious when he talked about opening up to foreign investment.ö
Small is beautiful
On the same day as the Hyundai announcement, KoreaOnline, an integrated online financial services provider, added another securities company to its portfolio of financial institutions. It and another investment partner have agreed to purchase the 48.75% stake ináIleun Securities owned by the Korea Deposit Insurance Company (KDIC) for $98 million. State-run KDIC is charged with shoring up KoreaÆs ailing banking sector by buying bad loans from sick banks like the Korea First Bank. Since the financial crisis it has been raising the trillions of won needed for financial restructuring through bond issuance and selling government-held shares.
KoreaOnline is 46% owned by Hong Kong-listed iRegent.com and has a Western management team headed up by CEO Robin Willi,áfomerly managing director of Bear Stearns Asia.ááIt is positioning itself as a æbricks and clicksÆ operator, bringing together its traditional insurance, securities, asset management and banking companies with an integrated call centre and internet distribution channel.
Its growth has been mainly through the acquisition of small Korean financial institutions, although it is growing its Regent Asset Management subsidiary from scratch. It had previously acquiredáHaedong Insurance andáKyun Su merchant bank and will be adding the retail orientedáIleun Securities to its existing Regent Securities, which up until now has had more of an institutional focus.
ôWe buy these assets at maybe one-to-two times price earnings ratio (PE) and turn them around by using 21st century distribution channels,ö saysáKoreaOnline COO Andrew Ashworth. ôTheyÆre quite small so we can turn them around quickly.ö
Particularly in the securities area these smaller players, although they might be able to change focus quickly, are facing fierce competition as well as significant market share dominance by the five largest brokerages. As of June this year 57.6% of the market by trading volume was held by the æbig fiveÆ û Hyundai Securities, Samsung Securities,áDaishin Securities, Daewoo Securities and LG Securities. Pure online brokers held 12.8% of the market while the rest of KoreaÆs licensed brokers made up 29.6%.
SamsungÆs Chung says that with de-regulated commissions dropping to the lowest anywhere in the world, many of the smaller brokers wonÆt be able to sustain themselves. ôSome smaller companies have tried to compete online by dropping their commission to 2 basis points,ö he says. ôBut this wonÆt work.ö
While many smaller firms will just cease to exist, Chung says thatásome smaller players will be bought out because of attractive pricing. ôA lot of them are trading at very low valuations, mainly due to instability in the sector from all the restructuring,ö he says.
Ashworth doesnÆt rule out more acquisitions for KoreaOnline, but says the company is concentrating on boosting profits across its range of financial services before taking the company public, probably to Nasdaq sometime in 2001.
He says that because they are getting a good price on their acquisitions in Korea they will be able to priceáKoreaOnline at a level thatÆs attractive to Nasdaq investors. ôWe could look at around six times PE rather than the average eight-to-ten,ö he says. But he admits that they might look at a name change if they continue to be asked if theyÆre an ISP with a connection to AmericaOnline.
