KDB’s IPO may be deferred after 2011

Delay may cause serious blow to South Korea’s privatisation efforts as the fundraising strategy could provide bumper profits to the government.

South Korea may not go ahead with a planned initial public offering of state-run KDB Financial Group this year as the government focuses instead on troubled savings banks hit by soured property loans, a source with knowledge of the matter said on Tuesday.

Any delay in the KDB Financial IPO, a lynchpin of South Korean president Lee Myung-bak's drive to privatise state firms, would be another blow to the government after it failed to sell the government's $6 billion stake in Woori Finance Holdings last year.

"There's virtually no progress being made and (they) have yet to decide on lead managers, but financial market conditions are not so promising (to press ahead with the plan)," the source told Reuters. The person declined to be named because of the sensitivity of the issue.

An IPO by KDB Financial Group, which owns Korea Development Bank and Daewoo Securities, could bring bumper profits to the government, which spent billions of dollars to rescue failed financial firms in the wake of the 1997-98 financial crisis, as the stock market extends its rally to record highs.

But a share sale, which would have been one of the country's biggest IPOs this year, has taken a back seat while regulators focus on rescuing troubled savings banks, which emerged as a major concern for Asia's fourth-largest economy this year.

The failure of Woori's state sale to attract investors affected the privatisation schedule of KDB Financial Group. Now market rumours suggest the two firms might merge, after a close presidential ally and former finance minister, Kang Man-soo, took the helm of KDB in March.

View the full story in Reuters.