By Kim Jae-kyoung
Staff Reporter
A noted American lawyer said that private equity funds operating here are unfairly attacked as ``eat and run,'' noting that ambiguous regulations and anti-foreign capital sentiment have scared away these funds.
His remarks are attracting special attention as many private equity funds here are taking steps to pull out of Korea due to uphill competition coupled with growing anti-foreigner sentiment.
In a recent interview with The Korea Times, Jeffrey Jones, a lawyer at Kim & Chang, said that private equity funds here feel a certain hostility and unfriendliness as they are seen as speculators not caring about local markets and economy.
He stressed that foreign private funds are viewed here as short-term investors which provide little or no value to the companies in which they invest, making short-term gains without paying taxes and without adding any value.
``This is not true. Private equity funds typically acquire undervalued or ailing companies and inject needed capital and expertise to these troubled companies,'' Jones said.
``Typically, private equity funds take on risk that strategic investors cannot and should not take. Given this risk factor, the returns are often higher than those for strategic investors,'' he added.
Regarding taxation issue, he pointed out that almost every country with a tax treaty with Korea exempts taxes on capital gains on equity investment.
``This applies to strategic and private equity funds, and is consistent with international practice,'' he said. ``This applies to all Korean companies investing in the U.S. Despite this practice and legislation, private equities are attacked as 'eat and run.'''
He said that in the very recent past, the Korean government made attempts to renegotiate double tax treaties with various countries and legislation was introduced to put certain countries on a black list for being so called tax havens.
``Without commenting on the substance of these attempts, this effort created an environment of uncertainty and scared away investors,'' he said.
Jones, who headed the American Chamber of Commerce Korea (AmCham), also criticized the nation's criminal law for being too ambiguous.
`` The Korean criminal laws are extensive and unlike other countries. More business decisions can result in criminal liability,'' he said. ``This increases the risk of doing business in Korea and keeps out private equities.''
In particular, he emphasized that the Lone Star case has become symbolic of this environment and every foreign investor, strategic or PE, expresses concerns about the treatment of the U.S. buyout fund.
Lone Star, the U.S. buyout fund, is the largest shareholder of Korea Exchange Bank (KEB), the nation's fifth largest lender. HSBC's attempt to take over KEB has been adrift as the government has held off the approval of the deal in the face of growing anti-foreign capital sentiment.