By Kim Jae-won
It’s now become a race against time.
Come May 26, Hana Financial and Lone Star will be free from their deal on the Korea Exchange Bank (KEB).
It is widely expected that financial regulators ― the Financial Service Commission (FSC) and its enforcement organization, the Financial Supervisory Service (FSS) ― will decide whether to okay Hana’s plan to purchase a controlling 51 percent stake in KEB from Lone Star during their scheduled meeting this month.
At stake is the reputation of Korea Inc., which is already tarnished by its foot-dragging on the buyout fund’s exit plan. Financial experts say that Lone Star has little to lose, even if the deal falls through. It can get a fat dividend to cover the cost of buying KEB, while KEB will likely be blighted with little investment to go around for its future growth.
Of course, the public would feel bitter about Lone Star getting away with a big payoff, if its deal with Hana is approved. The FSC and FSS are obviously worried about how that public wrath will affect them, which makes them keep delaying a final decision.
The FSC did not put the Lone Star case on the table at its regular meeting on Wednesday delaying the decision once more. FSC Chairman Kim Seok-dong promised to end the case within April, but did not keep his promise. The FSS is also unsure.
Asked whether the FSS completed its examination on Lone Star, Governor Kwon Hyouk-se said that he had no time to check it out as he was too busy preparing for public hearings on the savings banks fiasco.
"Consultation with the FSC has yet to be held," Kwon said. "I have yet to receive a report on the issue from working-level officials."
An industry source said that financial regulators are delaying a decision not because they need time to examine it more, but because they are afraid to take responsibility for the decision.
“The FSC and FSS may discuss who will be responsible if the decision on Lone Star turns out to be wrong later,” said an official of a Korean lender on condition of anonymity.
A delayed eligibility decision will be a drag on Lone Star’s sale of its KEB stake to Hana Financial, the nation's fourth-largest local banking group. By contract, either side can break from the deal after May 24, the day that is six months from the signing day of Nov. 24. Lone Star should be recognized as KEB’s largest shareholder before being allowed to sell the stake to Hana Financial.
It’s time to decide. As FSC Chairman Kim said, the government exists to rule. If the FSC avoids ruling, there is no reason for its existence. As a western idiom says, the regulators need to “strike while the iron is hot.”
Doubts over the legality of Lone Star's holdings of the controlling stake in KEB spread after the Supreme Court's March 10 reversal of a not-guilty verdict on the former head of Lone Star's local unit. The top court overturned a lower court's ruling to acquit Paul Yoo of issuing a false disclosure to drive down the stock price of KEB’s credit card unit before buying it on the cheap in 2004.