Bloomberg News

Lone Star’s Korea Exchange Bank Sale Wins Regulatory Approval

January 29, 2012

Jan. 28 (Bloomberg) -- Lone Star Funds’ sale of Korea Exchange Bank won approval from regulators, clearing the final hurdle for Hana Financial Group Inc.’s 3.9 trillion won ($3.5 billion) purchase.

The Financial Services Commission ruled yesterday that Seoul-based Hana, South Korea’s fourth-largest financial group by assets, has sufficient health and funding to buy the 51 percent stake, the regulator said in a statement.

The Commission’s nod allows Dallas-based Lone Star to end an eight-year investment that has been plagued by legal disputes and a public backlash over profits. Hana Chairman Kim Seung Yu has been pushing to complete the purchase of Korea Exchange Bank for more than a year to help narrow the lead of bigger rivals KB Financial Group Inc. and Woori Finance Holdings Co.

“Given the amount of dividends KEB paid out to Lone Star over the years, it was a profitable investment,” said Chang In Whan, president of KTB Asset Management Co., which manages $2 billion of assets. “But when you look at the investment horizon and all the legal and public scrutiny, I’m not sure it was all that worth it.”

Shares of Korea Exchange Bank rose 1.5 percent to 8,150 won at the close of trading in Seoul yesterday before the announcement. Hana gained 3.8 percent to 39,950 won, while the benchmark Kospi index advanced 0.4 percent.

Make Global

“Now our job is to make Hana and KEB global banks that represent South Korea and explore markets around the world,” Kim told reporters in Seoul. He said the deal will be completed within five working days. Hana will also buy a 6.25 percent stake in KEB held by Export-Import Bank of Korea, Kim said.

Lone Star in November edged closer to ending its investment when the regulator ruled that the fund should sell at least 41 percent of Korea Exchange Bank, without dictating how it should offload the stake. The FSC made that ruling after Lone Star and its former country head were found guilty of stock-price manipulation by a Seoul court.

In December, Lone Star agreed to cut the price for KEB by 11 percent, a second reduction, and extend a deadline for the completion of the deal to the end of February.

Two calls made outside of regular work hours to the office of Lone Star’s spokesman in the U.S. went unanswered, as did an e-mail seeking comment. A spokesman for Korea Exchange Bank declined to comment.

Workers’ Opposition

The workers’ union at Korea Exchange Bank criticized the regulator’s approval, saying it was unlawful and should be nullified, according to an e-mailed statement yesterday. The union will review ways to stop the sale, it said.

Lone Star, which had invested 2.15 trillion won in Korea Exchange Bank since 2003, has already recouped 2.53 trillion won in after-tax profit through dividends and a sale of some shares, according to data from Korea Exchange Bank.

Courts, regulators and lawmakers helped derail Lone Star’s two earlier attempts to sell the stake since 2006. HSBC Holdings Plc dropped a $6 billion bid for the holding in September 2008 after authorities left the proposed transaction in limbo for more than a year because of legal disputes.

“A major hurdle for them to exit has been lifted,” said Heo Pil Seok, chief executive officer of Midas International Asset Management Ltd., which oversees about $1 billion in assets. “It’s true that this decision is coming later than expected, but the market will accept the approval favorably.”

Standard Chartered Plc’s purchase of Korea First Bank in 2005 for $3.2 billion and Citigroup Inc.’s acquisition of KorAm Bank for $2.7 billion in 2004 are among the biggest banking takeovers so far in South Korea.

--Editors: Russell Ward, James Gunsalus

To contact the reporters on this story: Seonjin Cha in Seoul at scha2@bloomberg.net; Taejin Park in Seoul tpark31@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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