Sale of restructured companies

Author: | Published: 1 Jul 2005
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The Korea Federation of Banks (KFB), a trade association representing the interests of the Korean banking industry, has amended its Guidelines Concerning Management and Sale of Capital Stock Acquired by Creditor Financial Institutions by way of Debt-to-Equity Swap (the KFB Guidelines) to enhance the level of transparency during the sale of restructured companies. The amended KFB Guidelines, to which all banks in Korea are bound, took effect as of June 3 2005 and will apply to the up-coming sale of restructured companies.

First, to identify speculative funds seeking short-term gains and eliminate these funds from the bidding process, the amended KFB Guidelines require the bidders to disclose, among others, details of investors (for example, the composition of a consortium) and funding sources at the outset. Before the implementation of the amended KFB Guidelines, a bidder only needed to submit this information upon being selected as the preferred bidder.

Second, the amended KFB Guidelines restrict the participation of any person having access to inside information on a restructured company (including affiliates of the main creditor bank and any person conducting due diligence on, or providing advisory service to, the restructured company) in the bidding process for the sale of that company. Persons restricted from participating in the bidding process include private equity funds (PEF) of main creditor banks with equity interest in the restructured company.

Third, the amended KFB Guidelines include lock-up provisions, enabling common management (including sale) of capital stock in a restructured company acquired by creditor banks by way of debt-to-equity swap. Such provisions are expected to decrease the possible conflict of interests between creditor banks during the sale of a restructured company - especially in light of the increasing number of PEFs capitalized by banks.