Hana Financial wins suit against Lone Star on KEB deal

Hana Financial Group, one of South Korea’s four major banking groups, said Wednesday that it has won an international arbitration against US private equity fund Lone Star Funds over its purchase of KEB Hana Bank, formerly known as Korea Exchange Bank.

Lone Star had filed a suit at the International Court of Arbitration under the International Chamber of Commerce in 2016, accusing Hana Financial of internationally lowering the price of KEB in negotiating the deal.

But the court has dismissed the charges, and as a result, the Korean financial group said it does not have to pay the $1.44 billion in compensation that Lone Star had demanded through the legal proceedings. 

The international court informed Hana Financial of the ruling on Wednesday, the company said in a disclosure.

In 2003, Lone Star purchased a 50.5 percent stake in KEB for 1.4 trillion won ($1.18 billion) before selling a 51.02 percent stake in the Korean lender to Hana Financial for 2.02 trillion won in 2012.

The agreed selling price was set at 3.91 trillion won, but payments, including 391.6 billion won in state taxes and 1.5 trillion in loans backed by KEB shares, brought down the final price to 2.02 trillion won.

Lone Star has claimed that the Korean government interfered in the price negotiations, putting pressure to lower the buyout price. It also contends the state taxes were illegitimate.

In addition to the now-dismissed suit against Hana Financial, Lone Star also filed an investor-state dispute arbitration claim against the Korean government in 2012, for alleged losses related to its investment in KEB. The case is still pending.

Lone Star has sought some 5.3 trillion won in compensation through the investor-state dispute settlement platform. It has claimed that the Korean government delayed the sale and exerted pressure on the firms to lower the buyout price. The PEF has also problematized the taxes collected at the time by the state.

The ISDS case is expected to reach a settlement in four to five months, according to industry projections.

By Sohn Ji-young (jys@heraldcorp.com)