Lone Star seeks international arbitration

By Kim Jae-won

Lone Star Funds said Thursday that it filed a complaint against the Korean government with the International Center for Settlement of Investment Disputes under the World Bank Group based in Washington, D.C. The move came after they have failed to reach a compromise over the former’s damages claim against the latter.

The fund said that it has initiated international arbitration of its claim for damages, which it argues it suffered as a result of the Korean government’s “unlawful interference” with the Texan company’s rights as major shareholder of Korea Exchange Bank (KEB) and other Korean companies it acquired in the early 2000s.

“Though we sought discussions with the South Korean government following our May 2012 notice, an amicable resolution to this dispute has not been possible. Given our duties to our investors, we are obliged to proceed to arbitration with the claims set out in our notice,” said Michael Thomson, general counsel of Lone Star, in a press release.

The Financial Services Commission (FSC) immediately countered Lone Star’s claims, and vowed to fight the complaint.

“We prepared for the arbitration trial by launching a task force in May when Lone Star notified us of its intentions. We will unveil the iniquities of the company’s claims,” it said in a statement.

Lone Star did not specify the amount it is seeking but government officials said that it will be in billions of dollars, referring to the company’s earlier notice to the government in May.

The Ministry of Justice expects that Lone Star will unveil how much compensation it wants later in the arbitration process.

Lone Star has argued it suffered losses worth billions of dollars as Korean financial regulators dragged out its attempt to divest its stake in KEB. Acquiring the bank in 2003 for 2.15 trillion won (about $1.8 billion), Lone Star walked off with 3.9 trillion won after managing to sell it to Hana Financial Group earlier this year.

However, this was only after the FSC killed potential deals with Kookmin Bank and global banking giant HSBC in previous years.

Lone Star signed a deal with HSBC to sell its 51 percent stake in KEB in 2007 for a reported price of 6 trillion won. However, the FSC delayed its approval of the deal after the global financial crisis erupted in 2008 and HSBC eventually bailed. This has Lone Star claiming that the botched deal cost it more than 2 trillion won, according to the FSC official.