Lone Star Stepping Up Efforts to Flee Korea
By Lee Hyo-sik
Staff Reporter
Lone Star Funds, a U.S. private equity fund, is stepping up its efforts to flee South Korea by disposing off its stakes in Korea Exchange Bank (KEB) and other companies.
Following its sale of a 13.6 percent stake in KEB through a block sale to multiple institutional investors for 1.2 trillion won ($1.3 billion), Lone Star Friday disposed off its stakes in Kukdong Engineering & Construction and StarLease.
Lone Star said it will ``continue to hold this investment for sale to a strategic investor.'' ``We are actively looking for a strategic investor who can take KEB to the next level,'' Lone Star Chairman John Grayken said in the statement. The KEB stake sale left Lone Star with 51.02 percent of Korea Exchange Bank, down from 64.62 percent previously.
Hana Financial Group and National Agricultural Cooperative Federation (NACF) acquired a less than 1 percent stake each in Korea’s fifth largest lender. But Kookmin Bank stayed away from buying shares.
Hana Chairman Kim Seung-yoo and NACF officials said their buying is for portfolio investment purposes, not for management takeover. A Kookmin official said the nation’s largest lender has no intention to acquire KEB shares as a minority shareholder.
According to Credit Suisse Group, the sale's arranger, the U.S. investment fund sold 87.7 million KEB shares for 13,600 won per share, a 6.8 percent discount from Thursday's closing price of 14,600 won.
Lone Star had initially offered a 11.3 percent stake in the bank, or 73.09 million shares, but decided to sell an additional 2.3 percent stakes, or 14.61 million shares, as more investors wanted to purchase KEB shares.
Analysts said the U.S. fund decided to liquidate some of its holdings to pay off loans it borrowed to acquire additional KEB shares from Export-Import Bank of Korea (Exim Bank) and Germany’s Commerzbank.
Market watchers said Lone Star recouped about 880 billion won, five times its initial investment through its sale of stakes in Kukdong to Woongjin. The equity fund acquired 98.1 percent of Kukdong by investing 170 billion won in May 2003.
In October 2003, Lone Star purchased a 50.5 percent stake in KEB for 1.4 trillion won, or 4,245 won per share. At that time, Lone Star also singed up a call option to buy a 14.1 percent stake held by Exim Bank and Commerzbank.
The sale came two weeks after Lone Star Chairman John Grayken said that the U.S. buyout fund may sell KEB before a Seoul court rules on the legality of its acquisition of the bank. The Seoul court is currently deliberating on whether there was any wrongdoing in the sale of the bank to Lone Star.
Lone Star has been trying to sell its stakes over the past year but has not been able to do so because of legal problems associated with its purchase of the shares in late 2003. The prosecution and the Board of Audit and Inspection have accused the fund of acquiring the majority stake in the bank at below market prices through illicit ways.
The investment fund signed a contract with Kookmin Bank, the country's largest lender, in May last year to sell its entire KEB stake but cancelled it in November because of the investigation.
After the contract with Kookmin was cancelled, Singapore's DBS Group Holdings showed interest in buying KEB, and Lone Star started negotiations. However, Singapore's largest bank said last week that it ended talks with the U.S. investment fund, citing the legal uncertainties surrounding Lone Star's KEB acquisition.