Woori faces dilemma on falling share price

Woori Financial Group Chairman Sohn Tae-sung is facing growing concerns over the group’s stock price, which has dropped sharply over the past few weeks despite his continuous efforts to raise it, according to market analysts, Wednesday.

For several reasons, the financial services holding company has been required to raise its stock price.

One reason is its planned acquisition of Woori Card, which is currently a wholly owned subsidiary of Woori Bank, which is owned by the holding firm.

In June, the financial group decided to buy all Woori Card shares from Woori Bank, with the holding firm’s shares and some additional cash.

Following the decision, the bank will hold a 5.83 percent stake in the holding firm from Sept. 10.

The bank is supposed to buy the holding firm’s stocks for 14,212 won ($11.74) per share.

It has to sell the shares within six months after its acquisition, given that the law bans subsidiaries from owning shares in their holding companies.

Woori Bank has already discussed selling Woori Financial Group shares to institutional investors worldwide including a Middle Eastern sovereign fund, since it hired Goldman Sachs as an adviser.

According to the Korea Exchange, however, the stock price of Woori Financial has stayed below 12,000 won for the past few weeks — far below 15,600 won, which was the price of Woori Financial Group shares when the company was relisted on the KOSPI market on Feb. 13 as a holding firm.

Woori Bank will be unable to avoid suffering losses, if the price of Woori Financial Group shares falls short of the acquisition cost at the moment of disposal.

“The price of Woori Financial Group shares will depend on concerns about overhang, which is related to the Woori Card acquisition,” KB Securities analyst Yoo Seung-chang said.

Another reason for the higher stock price is the government’s plan to sell its shares in Woori Financial Group.

The government announced in June it will sell a Korea Deposit Insurance Corporation-owned 18.32 percent share in Woori Financial Group by 2022.

The price of shares need to be around 13,800 won, for the government to recover the money it spent as a public fund.

Although the Financial Services Commission said it would not take the stock price into account, Woori Financial Group shares fell sharply from 14,000 won, which was the share price when the government announced its plan.

Against this backdrop, Sohn bought 25,000 Woori shares in 2019 to raise its stock price.

Despite his effort, investor sentiment has worsened for the financial group, due to unfavorable factors including the DLS fiasco.

Amid the growing controversy over Woori Bank’s mis-selling of derivative products, the group postponed Sohn’s planned investor relations roadshow in North America to October from late August.

Some analysts, however, said the downward trend in Woori Financial Group shares has been excessive, considering its performance in the second quarter.

“The concerns about overhang and the DLS fiasco will be temporary matters,” eBest Investment & Securities analyst Jun Bae-seung said. “The valuation of the stock has been attractive, because of the recent drop in its share price.”