FSC delays ruling on Lone Star’s eligibility

Decision spurns speculation that Hana Financial-Lone Star deal may break down


The Financial Services Commission announced Thursday that it has decided to indefinitely delay its ruling on whether Lone Star Funds of the U.S. was eligible to buy Korea Exchange Bank in 2003.

With the decision, speculation is rising in financial markets that the preliminary contract between Hana Financial Group and Lone Star to trade KEB shares may break down.

At a news briefing, the regulatory body cited the unconcluded court ruling on the alleged stock manipulation of CEO of now-defunct Lone Star Korea for its postponement.

The FSC had planned to announce its probe into the U.S. fund’s eligibility as the biggest shareholder of KEB during its regular meeting of panels on May 18.

“We’ve decided to take the court’s ruling into consideration,” FSC vice chairman Shin Je-yoon said.

In addition, he strongly suggested that the regulator would not approve or reject Hana Financial Group’s plan to take over majority take in KEB from Lone Star before the Supreme Court announces its final ruling on the allegedly fraudulent stock trading.

He confirmed that the FSC’s approval or rejection of the Hana-Lone Star deal would not precede the regulatory ruling on the U.S. fund’s eligibility.

In March, the Supreme Court hinted that former Lone Star Korea CEO Paul Yoo could be implicated in the stock manipulation of the now-defunct KEB Credit Service, which was later merged into its affiliate KEB with a massive manpower restructuring in 2004.

The Supreme Court overturned a lower court decision that found Yoo not guilty in the case of the Korean unit of the U.S. fund manipulating the stock price.

The case has been sent back to the Seoul High Court for retrial.

The ruling seemingly embarrassed the FSC, which had allegedly endorsed the Hana-KEB deal during the first quarter.

“I believe the FSC’s ongoing delay means that it has no intention to approve the Hana Financial’s takeover deal,” a local banker said.

Korean law bans industrial capital from taking more than 9 percent of a bank. A firm is categorized as industrial capital when its non-financial assets exceed 2 trillion won or its holdings of non-financial concerns account for at least 25 percent of its total capital.

The FSC began the review in 2007 after civic groups raised the possibility that the U.S. private equity fund could be industrial (or non-financial) capital.

Should Hana fail to obtain regulatory approval in six months, Lone Star could withdraw its memorandum of understanding.

The financial group applied for the endorsement in December.

By Kim Yon-se (kys@heraldcorp.com)