The South Korean economy received a boost from the latest auction of the Korea Asset Management Corporation (KAMCO) last month. The state agency charged with cleaning up the domestic banking sector sold W1.04 trillion ($816 million) of bad loans to U.S. private equity fund Lone Star Fund for a better-than-expected average price of 50 cents on the dollar.
The agency sold 8,100 loans backed by retail and residential properties, raising $455 million. The sale reinforces the bright outlook for Korea's economy, which looks to be staging a remarkable recovery after experiencing its worst post-war recession in 1997 and 1998.
Even before the auction, market players had expected the assets to fetch a good price, but KAMCO still described the results as a "great achievement," particularly since the bid price surpassed the 50 cents on the dollar mark less than a year since the body's first asset sale. The sale is KAMCO's fourth global auction since it started selling bad loans last September, and the second time that Lone Star has successfully bid for KAMCO assets, beating rivals such as Lehman Brothers, Goldman Sachs, Morgan Stanley and J.P. Morgan.
"We are still busy digesting our first portfolio, and developing a strategy to purchase additional portfolios from both KAMCO and private sellers in the future," Ellis Short, Lone Star managing director recently told ASRI (ASRI 5/31/99, p.8). The firm, which is the biggest buyer of distressed assets in Japan, plans to embark on a similar long-term buying spree of real estate-related assets in Korea. Last December, Lone Star purchased W565 billion of bad loans from KAMCO for an average price of 35 cents on the dollar.
Lone Star's presence in Korea is good news for KAMCO, whose auction schedule is continuing apace. Starting this month, the agency will hold at least one auction per month until it sells $13 billion in bad loans by year-end. The next jumbo auction is set for November, in which W888 billion of real estate-backed non- performing loans will be sold. VC