Private Equity Korea » Lone Star

Lone Star ordered to sell stake in Korea Exchange Bank

Ross Geesman — Fri, 18 Nov 2011 04:49:05 +0000

South Korea’s financial regulator Friday November 18 ordered US private equity fund Lone Star to sell its stake in Korea Exchange Bank within six months, rejecting requests from activists and opposition parties for a public sale of Lone Star’s stake.

The Financial Services Commission (FSC) said the Texas-based firm should lower its 51.02 percent holding in KEB to less than 10 percent by May 18, in a long-running case in which Lone Star’s former Seoul head was convicted of stock price manipulation.

Friday’s decision paved the way for Lone Star to exit its investment in South Korea and expedite the sale of KEB, the country’s fifth-largest lender, to Korea-based Hana Financial Group.

Lone Star agreed last year to sell its KEB stake to Hana in a deal originally assessed to be worth $4 billion, but the deal couldn’t be completed due to the court case.

The FSC ruled Friday that the fund was unfit to be the major shareholder in KEB after an appeals court last month fined it $20.9 million and jailed its former Seoul chief for stock price manipulation, overturning a 2008 acquittal.

Lone Star bought a controlling stake in KEB for $1.2 billion in 2003 and a year later merged it with KEB’s then-listed credit card unit.

Regulators to give Lone Star orders on Oct. 25

Stephanie Lim — Tue, 18 Oct 2011 08:49:43 +0000

Bloomberg has reported that the South Korean Financial Services Commission (FSC) plans to issue Lone Star Funds an order on October 25, giving the private equity fund a chance to either meet the requirements to hold its stake in Korea Exchange Bank (KEB) or sell its shares.

On October 6, the Seoul High Court found the U.S. fund guilty of stock-price manipulation, disqualifying Lone Star as a major holder of KEB shares. The fund was fined 25 billion won and its former local chief, Paul Yoo, was sentenced to 3 years in prison. Yoo filed an appeal on October 10, but Lone Star did not challenge the court’s conviction.

Due to local banking laws, it is highly unlikely that Lone Star will be able to meet the requirements to hold a majority stake in KEB. Local legislation stipulates that for a fund to invest in a banking entity, the fund must be classified as dedicated to the financial sector.

This, and the fact that the largest legal hurdles have been cleared away, suggests that the buyout firm is closer than ever to closing its proposed 4.4 trillion won ($3.8 billion) sale of its 51 percent stake in KEB to Hana Financial Group.

Seoul High Court gives verdict on Lone Star

Stephanie Lim — Thu, 06 Oct 2011 09:47:35 +0000

Maeil Business News has reported that the Seoul High Court has found Lone Star Funds guilty of stock price manipulation of Korea Exchange Bank (KEB). Paul Yoo, the former head of Lone Star Korea, has been sentenced with a three-year prison term and Lone Star Funds has been fined 25 billion won.

This verdict makes Lone Star unfit to be a majority shareholder of KEB and the Financial Services Commission (FSC) is likely to order the Texan fund to sell off at least a 41.02 percent stake of KEB. FSC officials told reporters that the method of stake disposal will be decided after a legal review and discussion amongst committee members.

According to Reuters, legal representatives for Lone Star were not available to comment on whether or not the private equity firm plans to appeal the decision.

Seoul High Court to rule on Lone Star October 6

Stephanie Lim — Fri, 09 Sep 2011 04:38:06 +0000

Reuters has reported that the Seoul High Court Judge Cho Kyung-ran said on September 8 that the court will give its final ruling on the stock price manipulation charges against Lone Star Funds on October 6.

In November last year, Hana Financial Group said it will acquire Lone Star’s 51% stake in Korea Exchange Bank (KEB) for 4.7 trillion won ($4.4 billion). However, regulatory approval for the deal has been delayed as Lone Star is fighting charges that it manipulated the stock price of the then-listed credit card unit of KEB in 2003.

If the court pronounces Lone Star guilty, the U.S. buyout fund will be considered as an ineligible stakeholder of KEB, and the financial watchdog can order it to sell out 47 percent of its 51.02 percent stake within six months. The shares could be transferred to Hana Financial in the process, given the fact there is no designated rule on the means of disposal.

This July, Lone Star and Hana Financial reached an agreement to extend the deal deadline to buy Lone Star’s KEB stake at a reduced price of $4.17 billion to November 30. The deal will remain in effect after the deadline as long as neither party terminates the existing contract.

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Courts may rule on Lone Star-KEB as early as September

Stephanie Lim — Mon, 22 Aug 2011 02:05:14 +0000

Local news media JoongAng Daily has reported that the Seoul High Court is scheduled to hold a final trial on the Lone Star-Korea Exchange Bank (KEB) case on September 8. Courts take anywhere from two weeks to one month to deliberate, and a decision will be announced as early as the end of September or by early October at the latest.

In November 2010, Hana Financial signed a 4.41 trillion won ($4.07 billion) deal with U.S. private equity firm Lone Star Funds to buy a 51.02 percent stake in KEB, the country’s fifth-largest lender by assets. However, the sale has been at an impasse since the country’s financial regulator indefinitely deferred the deal due to a lawsuit over Lone Star’s alleged wrongdoing in its 2003 purchase of a credit card unit affiliated with KEB.

This September, the financial regulator will look into if Lone Star was an eligible buyer of KEB. If the court pronounces Lone Star as an ineligible stakeholder, the financial watchdog can order the U.S. buyout fund to sell out 47 percent of its 51.02 percent stake within six months. The shares could be transferred to Hana Financial in the process, given the fact there is no designated rule on the means of disposal.

It is largely expected that the Lone Star official engaged in the case will be pronounced guilty, allowing Hana Financial a better chance to acquire KEB. However, the deal could be stalled again if the Lone Star official does not come to trial or requests a constitutional review on the court decision.

Last month, Hana Financial and Lone Star agreed to extend the deadline for the KEB sale. The two sides agreed to extend the deal by six months to November 30 and lower the price to 4.41 trillion won from 4.96 trillion won. The extended deal will remain valid past the deadline unless it is cancelled by one of the parties.

Woori sale set to fall through due to lack of bids

Stephanie Lim — Thu, 18 Aug 2011 01:05:16 +0000

Various news sources have reported that by the August 17 deadline, only one bid had been submitted for the purchase of the government-owned Woori Financial Holdings. The bidder, MBK Partners, submitted an undisclosed amount for a 30 percent stake.

According to Reuters, the financial regulators in charge of the privatization stated on August 17 that the decision to continue or abandon the sale will be made on Friday, August 19. Financial experts suspect the deal will fall through, making this the second failed attempt to find a private owner for the country’s biggest banking group by assets, with last year’s attempt also failing to draw sufficient interest.

Though government officials, spurred on by President Lee Myung Bak, have been aiming to privatize companies that were bailed out more than a decade ago, the second attempted Woori sale received only one bidder due to the recent steep declines in world markets and public criticism of the role of private equity funds.

According to the Wall Street Journal, the two other private equity firms that had been expected to bid, Vogo Fund and TStone Corp., said separately that they didn’t do so because of deteriorating capital-market conditions.

Politicians have also said that selling to a consortium led by a private-equity fund won’t help develop the local financial industry. Critics say Woori Finance would just be put up for sale again in a few years as the goal of a private-equity fund is to make a profit.

Private equity firms have also been reluctant to participate in the sale, for fear of hold-up situations like those of Texas-based Lone Star Funds. Lone Star has been trying to sell Korea Exchange Bank for years, but has been dogged by lawsuits and by public hostility toward foreign private equity funds that bought Korean assets cheaply in the wake of the 1998 financial crisis.

Thus, the sale is likely to be scrapped once again, as regulators want to see offers from more than two bidders to show South Korean voters that the government had sought to get value for taxpayer money.

Woori shares recently rebounded from an almost a two-year low as world stock markets slumped, and on August 17 its shares rose 1.3 percent to 12,100 won ($11.30)outperforming a 0.68 percent rally on the wider KOSPI index.

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Eximbank to sell minor KEB stake

Stephanie Lim — Mon, 25 Jul 2011 05:39:09 +0000

According to Yonhap News, the state-run Export-Import Bank of Korea (Eximbank) said July 23 that it has decided to use its tag-along right to sell its 6.25 percent stake in Korea Exchange Bank (KEB). An Eximbank official said this decision was made on July 22, after U.S.-based Lone Star Funds, KEB’s biggest shareholder, extended its sale of a 51.02 percent stake for $4.1 billion to Hana Financial Group. The official said this course of action was chosen ”due to complex legal issues surrounding the KEB sale.”

This so-called “tag-along” right is given to minority shareholders and allows them to sell their shares at the same price when the major stakeholder offloads its interest. Under this right, Eximbank can ask Hana to buy its KEB stake, which means Hana will pay an additional amount around 540 billion won ($513.3 million) for control of KEB.

Yonhap’s report added that this tag-along sale will bring the state-run bank about 220 billion won ($209.1 million) in net profits.

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Hana Financial and Lone Star agree upon new contract

Stephanie Lim — Mon, 11 Jul 2011 01:00:09 +0000

According to JoongAng Daily, Lone Star Funds has agreed with Hana Financial Group to lower the price for a 51 percent stake in Korea Exchange Bank from 4.689 trillion won to 4.406 trillion won ($4.2 billion) and extend the sale deadline to November 30. This 6 percent, 282.9 billion won price adjustment was made due to the 1,510 won per share dividends KEB has recently paid to Lone Star.

Hana Chairman Kim Seung-yu said in an interview on July 8 that the company would continue to pursue the KEB purchase even if the November deadline passes. He said they would renew the contract again and that “the price will be adjusted like this time.”

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Hana-Lone Star’s KEB deal to get 6 month extension

Stephanie Lim — Wed, 06 Jul 2011 04:43:45 +0000

Several sources have reported that Hana Financial Group Inc. said on July 5 that it will reach an agreement with Lone Star Funds to extend the deadline to complete the 4.69 trillion won ($4.42 billion) deal to acquire a 51 percent stake in Korea Exchange Bank. According to Reuters, Kim Jung-tai, chief executive of Hana Bank, told local media that “the deal will be extended by six months to end-December.”

The Wall Street Journal reported that Hana has been negotiating a lower purchase price to reflect the recent record dividend payout of 1,510 won a share for a total of $499 million, as well as the dividend KEB could potentially pay if it successfully sells its Hynix Semiconductor stake later this year

Reuters also noted that in order to revive the deal, Hana Bank agreed to loan Lone Star 1.5 trillion won on the back of the fund’s holdings in KEB.

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Hana resolute to continue talks with Lone Star

Stephanie Lim — Mon, 20 Jun 2011 07:16:05 +0000

Bloomberg has reported that last week, Hana Financial Group’s stocks fell 4.9 percent to 35,300 won, their lowest close since November 2010. Hana’s shares have been falling as a result of speculation that their acquisition of Korea Exchange Bank will not go through. The deal seems to lose credibility each time Lone Star’s legal disputes are unresolved and a court decision is postponed.

Regardless, Hana is determined to close the deal and is continuing negotiations with the US fund. Hana said in an email to Bloomberg that it plans to continue talks despite legal delays.

On June 16, the Seoul High Court opened a retrial for the alleged stock price manipulation of KEB. Lone Star’s former local head Paul Yoo, Lone Star Funds itself, and KEB are all defendants in this matter. That day, KEB’s attorney told the presiding judge that it may file for appeal if the bank is convicted. According to Hong-Hun Pio, an analyst at KTB I&S, the appeal process could take years.

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