Along with the recent troubles that Lone Star went through to sell Korea Exchange Bank, foreign investors are more and more wary about putting money in Korea. A new report released today shows the harmful effects it is having on the Korean economy.
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Back in December of last year, the well-respected Bloomberg Businessweek magazine referred to doing business in Korea as “Foreign Peril” and called the country “hostile to foreigners.”

Not exactly the press you want being read by wealthy investors perusing the publications in first class on the airplane.

Whether it’s exaggerated by the media or not, Korea’s anemic 3% growth of foreign direct investment not only proves foreign reluctance to do business in Korea, and newly released numbers show the great harm an anti-foreign stance is causing the country.

A report released today by the Hyundai Research Institute, a Seoul-based think tank, said that Korea has lost some 660,000 jobs due to foreigners weary of investing here on the peninsula.

Just recently the government has twice tried to sell its 57% stake in Woori Bank, but foreign investors have steered clear of the hostile Korean market with its fickle public, shaped by nationalist politicians and a foreigner-investor unfriendly media.

And yet, in the news today as well, the government insisted that Korea was friendly and welcoming to foreign investors.

During the (Woori Bank) sales process, both domestic and foreign investors will be treated equally under Korean law,” Kim Seok-dong, chairman of the Financial Services Commission.

The fact that the government need even issue this statement is troublesome. If you were a foreign investor, what kind of message would this send to you?

The reason the government has to make the statement is because of foreign investors like Lone Star who get run through the ringer. Whether due to biased or intentionally over-burdensome regulation, public protest or lack of transparency, the Lone Star PR debacle is simply the most visible of the continuing problems attributed to a deep-seeded aversion to foreign business by the Korean public.

What kind of message does it send when a company comes in, buys a troubled bank, rebuilds it into the country’s fifth largest financial institution, creates jobs, preserves people’s savings, and then can’t profit from its efforts?

Even more perplexing is the very people it helped are in the streets screaming bloody murder.

Lone Star bought the then 28-year-old Korea Exchange Bank in 2003, when no domestic buyers weren’t interested. After bringing KEB back to prominence, Lone Star spent five years in regulatory hell dealing with the courts, regulators and lawmakers –all incited by public backlash and unfavorable media.

The word “Meogtwi” in Korean, which translates to “eat-and-run” in English, was frequently cited to describe Lone Star’s KEB sale in the media.

Lone Star was finally allowed to sell the bank to Korean-owned Hana Bank for $3.4 billion, an almost 50 percent reduction of what Britain’s HSBC offered in 2007, which was blocked by the Korean government wilting in the face of public outcry.

Though Hana Bank got a great deal (knowing KEB had no choice) and kept the profits in country, so fierce was the public protest that KEB got anything, Hana Bank’s Korean CEO stepped down in the face of it.

And yet, while people in Seoul were taunting government officials in protest where were they in 2002 when Korean conglomerate LG bought out a struggling bank in Poland at a discount, turned the bank around to profitability and then did the same thing as Lone Star –sold it at a profit?”

The “Horror Show”

James Rooney, a Seoul-based CEO and a member of the investment committee at Macquarie Korea Opportunities Management put it best in an interview with Businessweek.

“Investors would look at this case (Lone Star) as a kind of horror show, where every kind of risk that is hated by professional investors seemed to show up and create a massive distortion of intelligent markets. This case has made the prospects much, much worse for Woori.”

Appointed government regulators, to their credit, are trying to fight back against the public’s wrong-headed attitude towards foreign investment, but politicians wanting to get voted back in to office know better than to cross a voting-age mob.

In short, this is flying directly in the face of Korea being able to establish itself as the much hoped for and much hyped goal of being “Asia’s foreign financial hub.”

See ya’ll in Hong Kong or The Netherlands.