FSC vows Lone Star decision this month

By Kang Seung-woo

The Financial Services Commission (FSC) is nearing its decision over whether the Texas-based Lone Star Funds can exercise its rights as the owner of the Korea Exchange Bank (KEB). Talking with journalists Friday, FSC Chairman Kim Seok-dong wasn’t able to give an exact date but did promise to reach a conclusion this month.

``We are working to speed up the decision-making process, to be completed in April,’’ Kim said.

The financial regulator has been reviewing Lone Star’s eligibility as KEB’s largest shareholder after the Supreme Court found the former head of the buyout fund’s Korean unit guilty of stock manipulation ahead of its acquiring the bank in 2003.

After struggling for years to find a new owner for KEB, Lone Star signed a contract with Hana Financial Group in November last year to sell its 51 percent stake for 4.69 trillion won, more than three times its initial investment. The deal is contingent to approval by the FSC, which has delayed its decision due to controversial legal issues.

Observers believe that the FSC could make its decision on Lone Star’s eligibility as KEB’s largest shareholder as early as Wednesday or on April 20 during its biweekly decision-making councils.

Last month the Supreme Court overturned an earlier ruling by a lower court and convicted Paul Yoo, the former head of Lone Star Funds' Korean unit, of involvement in a stock manipulation scheme that apparently helped Lone Star’s acquisition of KEB. The case has now been referred back to the Seoul High Court.

Yoo was one of several Lone Star executives suspected of conspiring to put out false information on a capital reduction at KEB’s credit card unit, KEB Credit Services, in 2003. The rumors forced the company’s share prices to plummet before the bank bought it back later that year.

According to prosecutors the manipulation showed how Lone Star executives colluded with KEB’s former management and government officials to understate the bank’s financial health and eventually purchase it at a lower-than-expected price.

Following the Supreme Court ruling, the FSC has appeared cautious in its review process of the Lone Star-Hana deal as debate grew over Lone Star’s legal status in relation to KEB.

However, few observers believe the FSC will rule Lone Star as ineligible and snatch KEB out of Hana’s reach.

“We decided to delay the decision since we need more time for legal review before concluding whether Lone Star is eligible,” Choi Jong-ku, Standing Commissioner for the FSC, said.

Along with Kim’s confident outlook, the FSC’s legal review seems to be going without a hitch, which could spur the top regulator to come up with a final decision.

Lone Star, which bought the controlling KEB stake for 1.4 trillion won in 2003, has made repeated attempts to exit from the Korean lender, but its two previous sale deals with Kookmin Bank in 2006 and HSBC in 2008 fell through due to regulatory issues and the global financial crisis respectively.