Lone Star files $500 mil. suit against Hana
By Kim Tae-gyu
U.S.-based buyout fund Lone Star filed a lawsuit seeking $500 million in compensation from Hana Financial Group over the former’s sale of Korea Exchange Bank (KEB) to the latter.
In a regulatory filing, Hana Financial Group said Friday that Lone Star’s Belgian subsidiary LSF-KEB Holdings filed an arbitration request with the International Court of Arbitration (ICC) in Washington.
LSF-KEB was an entity which bought a controlling 51 percent stake in KEB in 2003 for 1.38 trillion won and sold it to Hana Financial in 2012 at 3.9 trillion won.
“We cannot understand why Lone Star takes issue with the buyer of KEB. We guess that the fund now raises issue with everything related to its KEB disposal,” a Hana official said.
He said that the $500 million seems to be the difference between the originally agreed-upon price signed between Lone Star and Hana Financial and the actual transaction price.
After a long battle, Lone Star managed to win the government’s approval to dispose of KEB in 2012, but only after having to substantially cut its asking price.
“We don’t know exactly what the amount means. It might be Lone Star’s losses caused by the delayed government approval. Then, why we are responsible?” the official asked. “Anyway, we will prepare for court action to properly deal with the litigation.”
This is not the first time that Lone Star has taken Korean entities to court _ the legal dispute at the International Center for Settlement of Investment Disputes (ICSID) still remains unsettled between the Korean government and the fund.
The private equity fund has claimed that the delayed government approval caused it to incur huge losses. Hana countered that any transfer in the country’s bank is subject to intensive review by financial regulators.
Lone Star requires the Seoul administration to pay it $4.7 billion in compensation for the delayed approval of its sales of KEB to HSBC in 2007. It also criticizes the tax imposed on its deal with Hana in 2012.
Its rationale: the regulators’ failure to give the nod to the KEB sale to HSBC led to an opportunity cost worth 6 trillion won.
Midway through 2007, Lone Star had a preliminary agreement for the sale of KEB shares at a high price to HSBC, but the British bank scrapped the pact the following year in the wake of the global financial crisis.
Lone Star contended that the lucrative deal did not materialize due to the regulatory delay.
The fund also claims that the government should not impose an 850 billion won income tax on the KEB sale to Hana because it is in violation of a bilateral deal between Korean and Belgium to exempt taxation on investments.
LSF-KEB, which actually bought and sold KEB as a Lone Star unit, is based in Belgium.
The regulators countered that they were unable to give the go-ahead for Lone Star’s contracts with HSBC or Hana earlier because of pending investigations and trials affecting the KEB sales.
The legality of Lone Star as the major shareholder of KEB, the country’s fifth-largest lender, was under debate after a former head of Lone Star Korea was found guilty of stock price manipulation. Domestic banking laws ban an entity from becoming the main shareholder of a financial outfit in such a case.
The possibility that Lone Star’s acquisition would be unwound was also raised due to alleged irregularities in the process of selling KEB to the fund.
The results of the ICSID action are not available to the public yet, which prompts civic groups to urge the government to make the process known because billions of taxpayers’ dollars are at stake.