By Kim Jae-kyoung
Staff Reporter
Lone Star Funds, the Korea Exchange Bank's largest shareholder with a controlling 51-percent stake, has no intention of selling off its stake anytime soon, according to a U.S.-based source close to the buyout fund.
The reaction from the U.S. private equity firm, led by Chairman John Grayken, comes as market speculation over the sale of KEB is growing after two potential buyers ― Korea Development Bank (KDB) and KB Financial Group ― recently showed interest in the lender.
``Lone Star believes that the time is not ripe for the sale and it has internally decided not to push for it until the global financial market, particularly the U.S. market, fully recovers,'' the source told The Korea Times, asking not to be named.
``The key issue is price. Lone Star wants to sell KEB at no less than 18,045 won per share, the takeover price agreed between HSBC and Lone Star to buy the Korean lender in September 2007,'' he added. ``The bottom line is around 15,000 won, KEB's share price when the two signed the M&A deal.'' KEB shares closed at 10,000 won per share Tuesday.
``The fund is well aware that KDB and KB are interested in acquiring KEB but they aren't considering starting negotiations as the fund believes that the lenders are not willing to pay what it wants at the moment,'' he said.
According to the source, the Texas-based fund's strategy is to wait until markets fully recover and make an attempt to sell KEB at around 18,000 won per share. If they are unable to sell at that price, they will dump KEB shares and file a lawsuit against the Korean government for the losses incurred by the rupture of the deal with HSBC.
``The fund believes that the Korean government should be held accountable for the breakdown of the deal. They claim that it fell through because the government delayed approving the deal,'' the source said.
``Lone Star is seriously considering suing the government if they have to sell off KEB shares at below 18,000 won. They plan to file a lawsuit for losses stemming from the price difference as well as foreign exchange losses,'' he added. When it signed a contract with HSBC, the won was trading at around 950 won per dollar. It is now trading at over 1,250 won.
Major local lenders, faced with difficulties raising profitability with domestic demand for banking services saturated, are eager to buy KEB, as its strength in overseas operations is expected to provide a big opportunity to expand globally.
In a recent interview with a local news agency, KB Chairman Hwang Young-key said that the nation's largest financial holding company would seek to take over financial companies including KEB when the economy gets back on its feet.
KB recently hired investment banks to raise its capital to around $2 billion by issuing new shares, a move that is seen by market watchers as a preliminary move to buy KEB.
KDB CEO Min Euoo-sung also said that the state-run lender ― expected to transform into a private bank in September ― is considering buying a lender on the domestic or Asian markets to secure the deposit base.
``Given the crowded banking industry, M&A can be a good option for the KDB privatization, and KEB is one of our M&A targets. A possible takeover would come before the government starts to sell the state-run lender,'' he added.
In late April, the National Assembly passed a law on KDB privatization. The government, the 100-percent owner, plans to put KDB under a holding company in September and will start to reduce its stake within five years.
In 2003, Lone Star paid $1.5 billion to take over KEB, then the country's fifth-largest lender. At that time, KEB was saddled with a huge amount of bad loans in the aftermath of the Asian financial crisis in 1997-98, with its capital adequacy ratio deteriorating
In September 2007, HSBC, the U.K. banking giant, agreed to buy the controlling stake in KEB for $6.3 billion from Lone Star, but the deal ended in failure as the financial regulator delayed approval, citing legal uncertainties over the U.S. fund's takeover in 2003.
kjk@koreatimes.co.kr
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