By Na Jeong-ju
Staff Reporter
HSBC Holdings has agreed with Lone Star Funds to take over a majority stake in the country's sixth largest lender, the Korea Exchange Bank (KEB), for $6.3 billion, the two firms said Monday.
However, the Financial Supervisory Commission reaffirmed that it will not approve the sale of the bank until a court delivers its ruling as to whether the sale of KEB back in 2003 to Lone Star was legitimate.
In a joint statement, the U.K.'s largest bank and U.S. investment fund said that HSBC will acquire a 51.02 percent stake in KEB through its wholly-owned subsidiary, HSBC Asia Pacific Holdings.
``The purchase price is 3,400 billion won plus $2,700 million amounting in total to the equivalent of approximately $6.317 billion,'' the statement said.
It said it will pay in cash, assuming the acquisition is completed on or before Jan. 31 2008. In the event that the acquisition is completed after 31 January 2008, the purchase price will be increased by $133 million, also payable in cash, it added
The agreement came about two weeks after HSBC confirmed it had been in talks with Lone Star, the majority stakeholder of KEB, to buy the bank. HSBC had conducted due diligence on KEB since early July to start price negotiations with Lone Star, sources close to the deal said.
The transaction, however, is subject to regulatory approval in South Korea. The FSC said it will delay its review of the deal for a regulatory go-ahead until a court makes a ruling on Lone Star's purchase of KEB.
The Seoul Central District Court is currently reviewing Lone Star's alleged violation of the Securities Law in 2003, with no date for the final verdict set.
``It is difficult for the FSC to make any decision on whether to approve HSBC's acquisition of KEB until uncertainties are completely removed over Lone Star's qualification as the KEB owner,'' said FSC's spokesman Hong Yung-man.
Hong said the FSC doesn't care about whether the new KEB owner will be foreigners or Koreans, denying speculation that the regulator favors Korean investors as the new KEB owner.
HSBC said it will apply for approval of the purchase to the FSC and the Fair Trade Commission. In the event that the formal application for approval has not been submitted to the FSC on or before Jan. 31 2008. Lone Star has the right to terminate the acquisition agreement.
HSBC said it plans to keep the KEB listed on the Korea Exchange. KEB's listing will provide a continuing opportunity for Korean investors to participate in KEB's future, it said.
``An acquisition of KEB would provide HSBC with a significant presence in Asia's third-largest economy and reinforce our position as Asia's No.1 international bank,'' HSBC Group Chairman Stephen Green said in the statement. ``HSBC has a long history in Korea. We are delighted with this prospective acquisition, which we believe would benefit the customers and staff of both KEB and HSBC.''
The London-based bank said it would offer KEB with the opportunity to add to the range of services it offers, from personal finance and credit cards to building deeper commercial and corporate relations.