"Government ownership" of a company is per se insufficient to 'transform' such company into part of the "government" or into a "public body". For a state-owned or controlled company to be a "public body", an additional factor must be present: the exercise of public authority or the carrying out of operations on the basis not of purely market/commercial criteria but pursuant to public nature objectives i.e. following policies which would normally be pursued by a government independently of commercial considerations¹⁶ e.g. a state-owned bank intervening in the capital market through lending operations guided by macro-economic policy objectives.

　

To the extent that government-owned companies are not part of the "government" nor "public bodies", the analysis should be made by reference to Article 1.1(a)(1)(iv) of the ASCM i.e. whether the government directed these companies to carry out functions which would normally be vested in the government. It is thus of capital importance to identify the banks which participated in the workout process of Daewoo and determine whether, or not, are considered to be public bodies.

　

Under the out-of-court workout procedures in Korea there is a lead bank normally the group's largest creditor, which is the bank responsible for negotiating the terms of any debt restructuring. Moreover decisions on restructuring could be taken by creditors institutions holding more than 75 percent of the company's outstanding debt. It will be reasonable, therefore, to examine whether, in the cases of the debt restructuring of Daewoo, the lead bank as well as the other major creditors were, or not, public bodies¹⁷.

In view of the above the lead/key financial institutions holding more than 75 percent of the Daewoo's outstanding debt were as follows:

　

　

Creditor orgnisations can be split in three categories, namely, quasi-governmental agencies, commercial banks and specialised banks. While specialised banks were established by separate acts, commercial banks, which consist of nation-wide commercial banks, regional banks and foreign bank branches, were established and are operated according to the provisions of the Banking Act.

　

KAMCO was originally established under the Korea Development Bank (KDB) Act and was commissioned by the government to manage and dispose of non-performing assets (NPAs) in the financial sector and state-owned properties. Since its foundation, KAMCO has been gradually expanding its functions. In November 1997, KAMCO was formally re-established to enhance and expand its role. At the same time, the Non-Performing Assets Fund was created to acquire, manage and dispose of NPAs to facilitate financial sector restructuring, the most integral part of KAMCO's business, based on the Act on Effective Management of Non-performing Assets of Financial Institutions and Establishment of Korea Asset Management Corporation.

The main purpose of KAMCO is to liquidate the non-performing loans held by the financial institutions. KAMCO's services are only available to financial institutions.

After purchasing non-performing loans of companies under workout programmes from a creditor financial institution, KAMCO obtained creditor's rights¹⁹ and would participate in the workout programmes as a member of the Creditor Financial Institutions Committee (CFIC) together with other creditor financial institutions; KAMCO is also a signatory of the CRA.

　

Overall, it was established that KAMCO has purchased about 86.9²⁰ trillion worth of NPLs at won 34.9 trillion until the end of December 2000. For example, KAMCO purchased NPLs from KDB, IBK, Hanareum banking Corporation, Hanvit bank, Shinhan bank, KEB, Pusan bank, KFB etc

As regards the shipbuilding industry, the total NPLs bought by KAMCO amounts to won 4.8 trillion at won 3.1 trillion.

Following debt-to-equity swap with Halla (19.10%) and Daewoo (26%) KAMCO became a major shareholder of these shipyards.

The role of the KDIC is to pay off insured depositors in the event of a liquidation in the insurance sector, or in the event that the FSC and the MOFE conclude that re-capitalisation using public funds of any such company is the appropriate action. In this stance, the KDIC provides the funds and should ensure that any terms and conditions are enforced. The KDIC is a special juridical entity with no capital established in June 1996 in accordance with the Depositor protection Act of 1995 with the purpose of operating the deposit insurance system prescribed by the Act. The main body governing the KDIC is the Policy Committee which comprises the President of the KDIC, the Vice Minister of Finance and Economy, the Deputy Governor of the BOK, the Vice Chairman of the FSC and the heads of the associations representing banks, insurance companies and other financial institutions.

　

KDIC was the main vehicle used by GOK in re-capitalising financial institutions during the financial crisis. For example, KDIC made capital injections to the following institutions in the period December 1997 to December 2000: Seoul bank, KFB, Hanvit bank, Chohung bank, Shinhan bank, Hanarm merchant bank, Pyonghwa bank, Kookmin bank, H&CB, Koram bank, Hana bank, Korean Life Insurance, Seoul Guarantee Insurance, KITC, DITC, Young nam merchant bank, Hanaro merchant bank etc.

As a result of the above capital injections GOK became a shareholder in the above institutions (shareholder's ratio ranging from 9.42% to 100%). KDIC represents GOK in the exercise of shareholder rights in these institutions.

　

Specialised banks were established mostly during the 1960s under individual acts to supplement commercial banks in areas where they could not supply enough funds due to limitations in funding, profitability, and expertise , and also to support special sectors that were given priority in Korea's series of economic development plans. With subsequent changes in the financial environment, however, specialised banks have expanded their scope of business into commercial banking areas, although their share of fund allocations to relevant sectors is still relatively high. In raising funds, specialised banks depend mainly on public funds and on the issue of debentures, although they compete with commercial banks for deposits. As of September 2000, there were 5 specialised banks in operation: the Korea Development Bank, the Export-Import Bank of Korea, the Industrial Bank of Korea, the Credit and Banking Sectors of the National Agricultural Co-operative Federation, and the Credit and Banking Sectors of the National Federation of Fisheries Co-operatives.

　

The Korea Development Bank ("KDB") was founded in April 1954 under the Korea Development Bank Act as a special purpose bank to supply long-term cridit for industries to stabilise the economy and promote industrial rehabilitation. The major businesses of KDB consist of 1) loans with longer than one-year maturity; 2) investment in the form of the underwriting of bonds and stocks; and 3) payment guarantees to help finance industrial projects. The issue of debentures has become KDB's main source of funds, while borrowings from the government which previously were its most important financial resources in the early stage, have decreased. KDB has also expanded its business into commercial banking areas.

　

Article 1 of KDB's Act of establishment (as last amended in 1995) provides that

　

It is owned 100% by the Korean Government and must undertake business "necessary to realize the objectives and goals stipulated in Article 1" (Article 18 of the Act). (emphasis added)

　

In the IMF Policy Matrixes on Corporate Restructuring²¹ KDB along with Kexim and IBK have been identified as a "Specialized and Development bank" - as opposed to "Commercial banks" - for which GOK has undertaken to take specific measures as opposed to measures applicable to all other commercial banks. In the same documents GOK specifies they will "issue regulations to extend ... prudential rules applied to commercial banks to specialized and development banks taking into account the specific characteristics of the institutions". (emphasis added).

　

Furthermore, KDB itself recognises it has a special relationaship with the Government and that it plays a public policy role. In KDB's website it is stated that "In addition to its public policy role as the Government's flagship financial institution, KDB also acts as the Government's funding vehicle for external borrowing. The Government has stated its intention to use KDB as the primary vehicle for raising funds in the international markets..."²² and that "KDB, a wholly owned government bank, created by the unique KDB Act, maintains a close and special relationship with the Government."

　

KDB's special role i s also evidenced from the fact that:

- in accordance with Article 44 of the KDB Act KDB's annual net losses are to be ultimately covered by GOK.²³

-KDB received capital injections from GOK every year since 1997 amounting to W3 trillion²⁴;

-KDB has also been the vehicle for the latest restructuring of the bond market;

-Special rules for single and group exposure ceilings apply to KDB as opposed to commercial banks (IMF matrix of 24/11/99).

　

Following debt-to-equity swap with Halla (10.61%) and Daewoo (40.83%) KDB became a major shareholder of these shipyards.

　

IBK was established in 1961 through the Industrial Bank of Korea Act to strengthen financial support for small- and medium- sized enterprises (Article 1 of the Act). The major businesses of IBK are 1) extending loans and discounts to small and medium business; 2) investing in equity or underwriting bonds issued by small- and medium-sized enterprises. IBK's main sources of funds are 1) deposits from the public, 2) the issue of debentures, and 3) borrowings from the government and the Bank of Korea. As at 31/12/00 it is state owned 80% as follows: MOFE 51%, KEXIM 16%, KDB 12.53%.

　

KEXIM was founded in 1969 through the Export-Import Bank of Korea Act to facilitate trade and external co-operation by providing medium and long-term credit. The major businesses of KEXIM consists of 1) medium- and long-term export financing for capital goods; 2) the support of overseas investments and major natural resource development projects; 3) credit extension to foreign buyers for importing capital goods and technical services from Korea. KEXIM's main sources of funds are 1) borrowings from the government, domestic/foreign financial institutions; and 2) the issue of debentures.

　

Following debt-to-equity swap with Halla (9.47%) KEXIM became a major shareholder of this shipyard.

　

　

Founded in December 1997 by the Korean Credit Management Fund as a temporary special purpose bridge bank to protect depositors and maintain the stability of Korea's financial system by taking over the operations of 16 insolvent financial institutions. It was transformed into a restructuring financial institution in September 1998.

Originally owned by the Korean Credit Management Fund it was taken over by KDIC in April 1998. It was dissolved on 31/12/00.

　

Hanareum has provided interest relief to Daewoo.

　

Hanvit was officially launched as a brand-new consolidated commercial banking institution on 6 January 1999 following the merger of the Commercial Bank of Korea(CBK) and Hanil Bank (Hanil). The merger was made with the infusion of public funds by state owned KDIC (W3.2 trillion on 30/9/98 and a further 2.7 trillion on 31/12/00). (KDIC share: 94.75% in 1998 and 74.65% in 1999 and on 30/11/00). On 23/1/99 the FSC, KDIC and Hanvit entered into the Agreement of Management Normalisation Plan to ensure the managerial autonomy of the bank.

　

Hanvit has made a debt-to-equity swap with Daewoo.

　

Shinhan was founded in 1981. On 30 June 1998 following recommendations from the FSC Shinhan took over the assets and liabilities of Donghwa Bank. To avoid bankruptcy KDIC injected W292.5 billion capital in preferred stock and W138.5 billion in subordinated debt in December 1998. KDIC currently owns 19.14% of their shares but without voting rights.

　

Shinhan has provided interest relief to Daewoo and Daedong.

　

KEB was established as a government-owned bank in 1967 to specialise in the foreign exchange and trade business. For a decade it had the exclusive right of offering trade financing and foreign exchange services. In 1997 trade financing and foreign exchange services were liberalised and KEB ventured into commercial banking. As of 31/12/00 it is owned by the State 43.17% (KEXIM 32.50%, Bank of Korea 10.67%) and Commerzbank (32.55%). Commerzbank acquired its share in July 1998 while KEXIM injected capital in April 1999 and December 2000.

　

Following debt-to-equity swaps with Halla (15%) and Daewoo (1.5%) KEB became a major shareholder of these shipyards.

　

Established in 1943 to engage in commercial banking. On 23/1/99 the FSC, KDIC and CHB entered into the Agreement of Management Normalisation Plan to ensure the managerial autonomy of the bank. From 13/2/99 to 30/09/99 GOK acquired 90% of stock. CHB acquired Chungbuk Bank and Kangwon Bank on 30/4/99 and 11/9/99 respectively. Owned by KDIC 80% as at 30/12/00.

　

Following debt-to-equity swaps with Halla (15%) and Daewoo (1.5%) CHB became a shareholder of these shipyards. In addition, CHB has provided debt forgiveness for Halla and interest relief for Daewoo.

　

Has not co-operated with the TBR investigation. It has indicated that as they are not the main creditor bank to any of the Korean shipbuilders they are not in a position to produce relevant information. Following the financial crisis Seoul bank was completely taken over and thus saved from bankruptcy by GOK (current GOK shareholding is 100%). In accordance with GOK's plans, it is due to be privatised in the near future.

　

Established in 1967 in Pusan in order to develop the regional industry. Privately owned and a regional bank. During the crisis it received management improvement recommendations by FSC but no public funds. In 1998 it made a capital increase to which GOK did not participate.

　

Following a debt-to-equity swap with Halla (1.81%) Pusan became a shareholder of this shipyard. In addition, Pusan has provided debt forgiveness and interest relief for Halla and debt rescheduling for Daewoo and Daedong.

　

Established in 1929. Following the financial crisis KFB bank was completely taken over and thus saved from bankruptcy by GOK. In particular, on 31 January 1998, KDIC made a capital injection of W1.6 trillion and acquired 93.75% of the shares. In accordance with an agreement with IMF GOK agreed to privatise KFB. In the process of this privatisation plan KFB sold NPLs totalling W3.57 trillion to KAMCO. GOK further strengthened the financial status of KFB through several capital injections before selling 50.99% of KFB shares to Newbridge Capital ("NC" - a US investment firm) . NC took over KFB's management as from 30 December 1999. However, under the agreement between GOK and NC, the former has guaranteed the values of certain loans and investments held by the Bank so that future losses on such assets²⁵ will be compensated by KDIC. Current stake of KDIC is 45.92%.

　

The Daewoo group applied to KFB for the workout programme in view of KFB's position as a main creditor of the whole Daewoo Group. At the first Creditors' Meeting on 26 August 1999, however, KDB was appointed as the lead bank for the DHI workout as it was the main bank of that particular Daewoo subsidiary. KFB's role was, thereafter, limited to exercising votes at the various Creditors' meetings. As creditor KFB provided interest relief to DHI and made a debt-to-equity swap.

　

With regard to Halla KFB sold all of its NPLs to KAMCO and therefore did not participate in the finalisation of Samho's reorganisation plan.

　

In view of the above the quasi-governmental agencies and the specialised banks can be considered as public bodies within the meaning of the chapeau of Article 1.1(a)(1).

　

The GOK's shareholding in the other commercial banks investigated (with the exception of Seoul Bank which did not co-operate) seems to be a consequence of the financial crisis and restructuring of the banking sector. Therefore, the GOK's shareholding is temporary and does not alter the principally commercial nature of these banks . Furthermore, the GOK has announced a strategy for divesting its shares in commercial banks acquired during the financial crisis²⁶. These banks cannot therefore be considered as public bodies within the meaning of the chapeau of Article 1.1(a)(1).

Although Seoul Bank did not co-operate with the Commission, there is no reason to assume that GOK's shareholding has altered the principally commercial nature of the bank; therefore it can be concluded that Seoul Bank is not a public body.