FSC pressured to veto Hana-KEB deal

The nation’s financial authority has been under mounting pressure to reject the takeover deal between Hana Financial Group and U.S. Lone Star Funds on the latter’s planned sale of Korea Exchange Bank.

Amid several unfavorable factors for Lone Star, including the Supreme Court’s recent ruling, the possibility that the Financial Services Commission will scrap its alleged decision to endorse the deal is emerging.

Hana Financial applied for the deal on Dec. 13 to the FSC, and the regulator had been expected to finalize the decision whether to approve Hana’s scheduled acquisition of KEB before April.

But last Thursday, the Supreme Court overturned a lower court decision that found Yoo Hoe-won, former head of the now-defunct Lone Star Korea, not guilty in the case of the Korean unit of the U.S. fund manipulating the stock price of the now-defunct KEB Credit Card.

As the case has been sent back to the Seoul High Court for retrial, uneasy public sentiment about the U.S. buyout fund is likely to get worse.

Furthermore, the union of KEB has strengthened its call for the financial authority to veto the deal. Thousands of the bank’s staffers held a sit-in protest at the KEB headquarters in downtown Seoul over the weekend.

While the FSC is expected to delay the panel discussion, slated for March 16, to finalize the approval (or rejection) in the wake of the court’s ruling, market observers are issuing the possibility that the deal will be nullified in the coming months.

If the processes including regulatory endorsement and Hana’s payment of takeover funds are not completed by the end of May, the preliminary deal will be cancelled automatically.

In this event, Hana Financial could have to pay an additional 89 billion won to Lone Star in addition to the 4.68 trillion won for a 51.02 percent stake in KEB held by the fund.

In the contract, Hana Financial agreed to allow Lone Star to receive as much as 280 billion won in 2010 dividends from the bank, or 850 won per share.

But the bank decided earlier in the day to pay 580 won in dividends per share, which will allow Lone Star to reap around 191 billion won in dividends.

Lone Star took over KEB in late 2003 when the lender was in financial trouble by purchasing a 51 percent stake for about 1.4 trillion won. The fund later boosted its share to 64.62 percent but sold part of that in 2007.

Hana Financial may also have to pay penalties to Lone Star if it fails to obtain the M&A approval by the end of this month.

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