Chairman Sohn Tae-seung of Woori Financial Group.

Woori Bank, a major Korean commercial lender, sold a 1.8 percent stake in its parent Woori Financial Group Inc. to a strategic investor.

The bank had acquired a 5.8 percent stake in Woori Financial earlier this month in exchange for handing over its stake in Woori Card to the parent company.

Woori Financial announced on Sept. 25 that its commercial banking subsidiary Woori Bank will sell a 4 percent stake in it to Fubon Life Insurance, the insurance unit of Taiwan's Fubon Financial Holding, through a block deal before the stock market opens on Sept. 26.

Woori Bank acquired the 5.8 pct. stake in its parent company, which is valued at 12,350 won ($10.30) per share, plus 600 billion won ($500.50 million) cash in return for handing over a 100 percent stake in Woori Card to Woori Financial on Sept. 10.

However, Woori Bank had to sell off the stake within six months.

Under the current Financial Holding Company Act in South Korea, banks are banned from owning a stake in a financial holding company and are required to sell the stake within six months after acquiring it.

The latest deal is expected to address the overhang issue which has dragged down the price of Woori Financial shares.

“With the latest deal, we can now attract foreign long-term investors. Woori Financial, which was officially launched this year, has won investors’ trust by improving business performance and raised expectations for a further rise in corporate value as it can expand its business in the non-banking sector in the future,” said a Woori Financial official.

The Korean government plans to fully cash out of Woori Financial Group by selling the remaining 18.3 percent stake by 2022 regardless of the stock price.

The Financial Services Commission (FSC) said Nov. 12 it would divest the stake in two to three stages starting from 2020, offloading up to 10 percent in each tranche.

This would complete the privatization of Woori, once a wholly-owned government entity formed through a merger of major lenders following the 1997 Asian financial crisis.

A committee said it plans to complete the sale regardless of the stock price. “The committee members are in agreement that it is important not to miss the timing. But we will reconsider the schedule if there is heavy volatility in the market,” said the committee.

The government owns 18.3 percent Woori Financial Group through the state-run Korea Deposit Insurance Corp. In 2017, it sold off parts of Woori Bank before it was converted to a holding entity to seven institutional investors, including IMM Private Equity, Tongyang Life Insurance Co., Hanwha Life Insurance Co., Kiwoom Securities Co., Korea Investment & Securities Co., Eugene Asset Management Co. and Mirae Asset Global Investments Co.

The 18.3-percent stake would be shed in the same competitive bid process as in the 2017 sale. Up to 5 percent of any remaining shares would be sold via a block deal.

Woori Financial Holdings was set up in 2001 as a holding entity after the government injected 12.8 trillion won to bail out five troubled financial companies in the wake of the Asian financial meltdown in 1997. Korea Deposit Insurance had then acquired 100 percent of Woori.

As of late May, the government had retrieved 11.1 trillion won, or 87.3 percent, of its bailout money.

A view of the Woori Bank Building in downtown Seoul. (Photos: Woori Bank)