[Newsmaker] Lone Star suit weighs heavily on Seoul

The ongoing suit over a multibillion-dollar investment compensation against U.S. private equity firm Lone Star is a battle with no retreat for the South Korean government, which has much to lose.

The $4.7 billion dispute settlement has so far cost 24 billion won ($22 million) in litigation expenses, and the amount is expected to escalate further in upcoming years, now that the hearing has kicked off.

Much to Seoul’s concern, however, the legal dispute is currently in a deadlock, with no conspicuous signs of victory so far.

Last Friday, the International Center for Settlement of Investment Disputes, an international arbitral organization, kicked off its 10-day hearing in Washington, D.C., to judge whether the Korean government caused financial damages to Lone Star during the latter’s sell-off of Korea Exchange Bank.

The suit, which was filed in November 2012, cost 4.8 billion won in 2013, 8 billion won in 2014 and 11.2 billion won so far this year, according to data submitted by the Ministry of Justice to the National Assembly.

The expenses cover law firm consulting fees, arbitration fees, witness payments and related travel costs, officials explained.

This year, more than 80 percent of the expenses have been used on legal fees to the two law firms in charge of the case ― U.S. dispute settlement firm Arnold & Porter and Korean law firm Bae, Kim & Lee.

The Korea government will continue to pay the administrative fees until the arbitration court reaches a conclusion. Last year, the two parties respectively paid $125,000 in advance to the ICISD.

But these litigation costs may be the least of Seoul’s problems, as it will have to pay a lump sum compensation if defeated ― at the expense of taxpayers.

A number of incumbent and former government officials, including former Financial Services Commission chairman Jun Kwang-woo, have flown to Washington as witnesses or assistants.

The key argument of the Korean government is that it had the legitimate authority to doubt Lone Star’s attempt to sell KEB to HSBC, given the public characteristics of the financial industry.

Lone Star, however, is accusing its counterpart of deliberately delaying its approval process to deter KEB from being sold to a foreign owner.

Years later, the U.S. company sold its stake to Hana Financial Group for 3.9 trillion won, which was lower than the 5.94 trillion won offered by HSBC but still higher than the original purchasing price of 1.4 trillion won.

Over the past few years, Lone Star’s involvement with the Korean financial industry has raised criticism that it made excessive profits by taking advantage of the aftermath of the Asian financial crisis in the late 1990s.

By Bae Hyun-jung (tellme@heraldcorp.com)