South Korea to ease rules on asset managers, M&A

SEOUL (Reuters) - South Korea will loosen regulations on foreign asset management firms and domestic private equity funds as early as this year, and eliminate rules deterring overseas acquisitions, two ministries said on Thursday.

The moves are the latest in a series of deregulation efforts for the financial industry as the government strives to raise its financial clout in Asia, and are aimed at helping companies secure new revenue streams.

The Capital Markets Integration Act, which allows brokerages to play a greater role with a broad range of businesses and products, passed Parliament in July to take effect in 2009.

"To grow efficiently in the era of global, boundless competition, our companies need to utilize overseas M&A as a strategic means aggressively," Commerce Minister Kim Young-ju said in a statement prepared for an M&A seminar.

"We will get rid of unnecessary regulations which place barriers to overseas M&A. We will also help strengthen financing functions for overseas M&A and supplement tax issues."

South Korean companies' overseas M&A deals reached $4.6 billion in 2006, or just 0.3 percent of global M&A activities for the year, the minister added.

Doosan Infracore's (042670.KS: Quote, Profile, Research) July announcement of a $4.9 billion purchase of Ingersoll-Rand's (IR.N: Quote, Profile, Research) Bobcat machinery unit topped the total value of 2006 outbound M&A for Korean firms.

Separately, the finance ministry said the minimum asset size under management will be cut to 1 trillion won ($1.07 billion) each for foreign asset managers selling overseas funds in South, from the current 5 trillion won.

The ministry also will exempt domestic private equity funds from regulations limiting overseas investment, enabling them to buy more foreign assets via special purpose companies based in other countries.

"We are aiming for the revised law to be in force within this year," said Hong Seong-ki, a finance ministry deputy director in charge of securities law

Under the revised law, investment funds are able to buy equity-linked warrants and securities issued in other countries.

Plus, they can borrow or lend exchange traded funds (ETFs) for arbitrage trade, taking advantage of differences between market prices and net asset value.

ETFs are similar to index funds tracking key stock indexes and traded on stock exchanges.

Meanwhile, to win a fund management license, top shareholders in foreign asset managers should have not taken administrative measures for domestic rule breaches in the past few years, according to the statement.

Top global fund managers, including Fidelity and Franklin Templeton, have been building a presence in Asia's third-largest asset management market, valued at $300 billion, betting on the country's burgeoning corporate pension management market.

($1=932.0 Won)