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| The lobby of Star Tower, the office building in Gangnam district, where Lone Star's Korea unit used to be located. / Korea Times file |
By Anna J. Park
The U.S.-based private equity fund Lone Star, which has been in a years-long legal dispute with the Korean government over its allegation that a previous administration sabotaged its attempt to sell its stake in the now-defunct Korea Exchange Bank (KEB) to HSBC in the fall of 2008, is offering a deal to settle the case, asking the current government to pay $870 million in a settlement.
Justice Party lawmaker Bae Jin-gyo alleged this at a press conference at the National Assembly earlier this week, maintaining that the government should not accept the offer.
Bae said Lone Star suggested the settlement in order for it to drop the case it has filed with the International Centre for the Settlement of Investment Disputes (ICSID).
"What the Korean government needs to do is to fact-check whether the documents sent by Lone Star are correct or not. Other than that, it's not worth taking any time to consider the offer," the lawmaker asserted during the press conference.
"The government should never accept negotiations with Lone Star, as it will further drain the national wealth," the progressive party lawmaker said. "If the government accepts the settlement offer, related key officials won't be free from public suspicion that they are scheming with Lone Star to avoid responsibility," he added.
A local media outlet reported on the story this week, revealing a two-page document sent by Lone Star to the Ministry of Justice, asking the government to pay $870 million. The document stated that if the administration pays the money, then the U.S. company would drop its case at the ICSID.
The company filed the case with the ICSID in November 2012, asking for $4.7 billion worth of damages from the Korean government for its alleged sabotage of the KEB stake sale.
The document also set a deadline of the end of this month for a reply to the offer.
The justice ministry only confirmed that the ministry received the documents from Lone Star, without commenting further other than saying: "The documents show Lone Star's willingness to settle the case. The government will review them."
Origin of 8-year disputes
The years-long dispute between Lone Star and the Korean government began after the U.S. equity firm purchased a 51.02 percent stake in the KEB in October 2003. The investment firm began attempting to sell the bank from 2006, holding a series of negotiations with various parties, including KB Kookmin Bank, DBS Bank of Singapore and HSBC.
Lone Star finally succeeded in selling the stake to Hana Financial Group in 2012. It had signed a sales agreement with Hana in November 2010 to sell the KEB shares at 14,250 won each for a total of $4.34 billion. Wrapping up the deal, Hana asked for the Financial Supervisory Service's (FSS) approval the following month.
However, the final approval only came in January 2012 ― the reason behind the delay was because of an ongoing trial over alleged stock price manipulation by Lone Star when it purchased KEB Card in 2003. The case ended in 2011, with the ruling that Lone Star's former Korean unit head convicted.
While the regulator's final approval was delayed because of the case, Lone Star and Hana agreed in 2012 to lower the sale price to $3.5 billion from the initial $4.34 billion. Lone Star filed its case with the ICSID at the end of that year.
Overall, Lone Star earned 4.6 trillion won over several years from dividends and profits from the sale to Hana Financial Group. The U.S. equity firm alleged that it could've made over 10 trillion won, if the government had not "sabotaged" the possible sale of KEB to HSBC in 2007 and 2008. The firm claimed that the financial authority's delay in its approval of the deal ended it and asked the government to pay $4.7 billion in damages.
The government has been tight-lipped about the case for the "sake of protecting the national interest" over the years.
"The government should stop any attempts to settle the case with Lone Star, and should reveal every related fact to the public. The government has never fully revealed detailed information about the case over the past eight years," Bae alleged.
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