Cracking Korea: Macquarie shows the way

SOUTH Korea, Australia's third biggest export market, has, like other Asian economies, been difficult for investors to crack.

Cracking Korea: Macquarie shows the way

SOUTH Korea, Australia's third biggest export market, has, like other Asian economies, been difficult for investors to crack.

But Macquarie Bank is emerging as a substantial force there, reinforced by its latest acquisition of ING's asset management business, boasting $26 billion in assets.

Macquarie is now the largest foreign asset owner in South Korea, which is an important global market with its powerful brands, including Samsung, Hyundai, LG and Kia, finding global success.

The bank does not break down its performance in national terms, but South Korea has become a key contributor to its bottom line.

John Walker, Macquarie executive chairman in South Korea and head of infrastructure for Asia, concedes: "It's a key business, a very significant business for us in Asia."

Walker landed in Seoul with the bank in 2000, after receiving an Order of Australia, chiefly for his contribution to the transport plan for the Sydney Olympic Games. The timing worked, he says, with South Korea picking itself up from the Asian financial crisis, which knocked it around especially hard, and led to a fundamental reshaping of its finance sector, which had been closely enmeshed with the chaebols, the industrial conglomerates.

Macquarie became unusually well-known as a brand because it led the field of private investors in public infrastructure, now known as Macquarie Infrastructure and Real Assets, comprising one listed fund and two unlisted funds investing across the spectrum.

For instance, in partnership with Samsung, it is the major investor in the 23km Songdo bridge from Seoul's international Incheon airport to a rapidly developing part of the Incheon free economic zone, three times the size of Manhattan.

The bank was the first private investor to build a subway line in Seoul in partnership with local investors. Recently a new activist mayor questioned elements of the deal that had attracted the investment in the first place, and refused to allow the operator to raise the fares. Macquarie found a local buyer, a new investment group, and realised its profit.

But pools of hostility to foreign investment persist.

"There's a predisposition towards identifying the foreigner," says Walker.

The Korea Times a fortnight ago published a story headlined: "Macquarie kicked out of Korea."

Walker, who obtained a retraction, stresses that the company is growing, not reducing, its stake in the country. Next month it will complete the acquisition of the biggest foreign asset manager in South Korea, ING.

This makes Macquarie the seventh largest asset owner overall in South Korea.

"We have a vast portfolio of investments here," says Walker. "The practice has been pretty good, but the (nationalist) sentiment remains as an undercurrent."

Macquarie also has a securities company in South Korea, which is a stockbroker with cash equities and research capacity, and Macquarie Capital, an investment bank that is one of the top five in the country in mergers and acquisitions.

Earlier this year, Macquarie advised the SK Group, the third largest Korean conglomerate, in its $3.2bn purchase of 21 per cent of the shares in Hynix, one of the world's biggest semi-conductor companies.

Macquarie provides corporate and asset finance, and runs one of the country's leading computer leasing businesses.

It has a bank branch, under whose licence it operates currency hedging and cross-border resource transactions.

It also manages the second largest movie theatre chain in South Korea.

One of the great strengths of the Korea business, Walker says, is its diversity. "Through economic cycles, some businesses, such as investment banking, will typically suffer in a downturn. But asset management tends to be more stable."

At the start, he says, "we had a niche infrastructure product that got us recognised. And we took a positive approach to joint ventures," at one point having four.

"The market warmed to us as a contributor, not a company that was just coming to buy cheap and sell dear without adding value. We have had scale here, too, and a growth attitude.

"A lot of competitors flew people in and out as needed but failed to establish a real presence. We were perceived as understanding local issues, not just blow-ins."

Walker's personal style helped. He quickly became prominent on the business media, participating in roadshows organised by South Korea's financial regulators and other government agencies to help promote the country.

And he is the author of popular children's books published in Korean and English, whose profits go to Korean environmental groups.

Macquarie itself has become a major educational sponsor, for instance of the school of graduate finance at a leading university.

It has also helped, Walker says, that "we are Australian, so we don't threaten anyone -- though it did take a while to convince people that we are serious about business in Australia, and have a highly advanced private sector".

He finds it "a little strange" that ANZ is the only other significant Australian financial institution in the country, though Hastings has recently opened an office.

Macquarie is now working closely with the National Pension Service, which has $320bn in funds under management, the fourth largest such amount in the world. It is investing with the NPS into airports, including the vast Incheon facility.

Walker is also the chairman of the Australia Korea Business Council. He believes that "the new Australian government has made all the difference" to the prospect of concluding the free trade agreement at last "and putting the relationship on the business map".

Macquarie operates in a lot of countries but its pervasive presence in what many view as a rather challenging market in South Korea points to the likelihood that this is its most profitable foray into Asia so far.