Opposition lawmakers set to derail KEB deal

By Kim Jae-won

The new leaders of the opposition Democratic United Party (DUP) have piled pressure on financial regulators Wednesday to postpone their approval of Hana Financial Group’s deal to acquire local rival Korea Exchange Bank (KEB) from Texas-based Lone Star Funds. Opposition lawmakers claim the deal should be suspended until questions over Lone Star’s legal eligibility as KEB’s owner are cleared up.

Talking with Financial Services Commission Chairman Kim Seok-dong, DUP Chairwoman Han Myeong-sook demanded that the regulator delay its final approval of the contract until after a parliamentary inspection into whether the U.S.-based buyout firm was legally eligible to buy a majority stake in KEB in the first place.

The Hana-Lone Star deal, agreed in late 2010, is still a national issue just months ahead of the parliamentary and presidential elections.

Critics argue that Lone Star shouldn’t have been allowed to buy KEB back in 2003 as its status as a financial company was questionable.

Under Korean law, a financial investor is allowed to hold a majority stake in a Korean bank or even fully own it, but non-financial investors are banned from securing more than a 4 percent stake. A company with more than 2 trillion won ($1.75 billion) of non-financial assets is classified as a non-financial player.

The DUP had suggested the ruling Grand National Party launch a National Assembly investigation into Lone Star over its investment in KEB, only to be rebuffed.

“It is our duty to resolve people’s suspicions on Lone Star. It should be unveiled how it was able to buy KEB through an inspection by the National Assembly,” Han said at a meeting with Kim at her office in Seoul.

However, Kim stressed that the regulator will review the Hana-Lone Star deal by the standards of “law and principle” and vowed not to be influenced by political pressure. Curbing to DUP pressure would mean derailing the 3.9 trillion won ($3.4 billion) contract, which would be the biggest merger and acquisition (M&A) deal ever executed in Korea should it be allowed to meet its February deadline.

Han, who served as prime minister under the liberal Roh Moo-hyun administration, called Lone Star an example of speculative “meoktwi” (eating and fleeing) with foreign capital. She argued its ownership of KEB should be nullified saying there is considerable evidence which shows the sale process violated local banking laws.

Industry watchers say the breakup of the KEB deal might invite a severe backlash both from Hana and Lone Star. Hana, Korea’s fourth-largest financial group, has mobilized all its assets to seal the deal, which it sees as a good chance to compete with its bigger rivals of KB, Woori and Shinhan.

Lone Star is also expected to challenge the suspension by filing a complaint with an international court against the Korean government if the deal falls through.

Sources close to foreign investors say any delay will hurt their business sentiment, who see the Lone Star case as an indicator of the Korean government’s stance on foreign investors.

But about 70 percent of Koreans believe Lone Star bought KEB on the back of a government favor in 2003 so the deal should be nullified, according to a recent survey.