No Imminent Seal for HSBC’s Korean Bank Purchase

Posted by: Ihlwan Moon on April 29, 2008

HSBC Holdings isn’t likely to finalize the planned purchase of Korea Exchange Bank any time soon, with the London-based bank extending the expiry of the contract, originally due on Apr. 30, by three months. That’s despite remarks by Korea’s top policymaker this month that the Seoul government would seek swift resolution to the regulatory deadlock that has stalled Lone Star’s $6.3 billion sale of its 51% stake in the Korean bank to HSBC.

Jun Kwang Woo, chairman of the Financial Services Commission, Korea’s top regulator, reiterated on Apr. 29 that the new government of President Lee Myung Bak would take a proactive stance to break the deadlock and send out a positive message to international investors. But Jun added that the administration has no say in legal proceedings, which have put HSBC’s purchase in limbo, and that it would have to take into account “public sentiment” and opinions for any solution to the issue.

Lone Star has been trying to sell KEB for two years but has been stuck because Korea’s previous government, which ended its term in February, had maintained that it would not approve any KEB deal before all legal uncertainties involving the U.S. private equity fund were cleared. Paul Yoo, head of Lone Star’s Korean operations, was sentenced in February to five years in jail after being convicted of manipulating the stock price of the bank’s credit card unit to acquire it at a cheaper price. Yoo has appealed the sentence. Lone Star had also scrapped a sale of its Korea Exchange stake to Kookmin Bank in November 2006 because of a probe into the dispute.

Now this long protracted saga over the sale of KEB could be concluded if Korea’s High Court makes a ruling on the dispute within three months and the regulators approve HSBC’s purchase. But another possible hurdle is the so-called “public sentiment.” Lone Star has been criticized by civic groups and Korean newspapers for attempting to pull out of the country with windfall tax-free gains made from the sale of its assets. A real test of Lee’s government would be how he could make a quick decision to handle this public sentiment.

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