Regulator delays approval of Hana-KEB deal

FSC also puts off ruling on whether Lone Star eligible to own KEB


The financial authorities Wednesday delayed its decision on whether to approve Hana Financial Group’s plan to acquire Korea Exchange Bank from U.S. Lone Star Funds.

The Financial Services Commission also declined to make a clear ruling on whether the U.S. buyout fund was eligible to control Korea Exchange Bank when it acquired the lender in 2003.

In terms of its eligibility to control a financial services company in Korea as the biggest shareholder, the U.S. buyout fund met “some” of the requirements, the FSC told a news briefing.

“We believe that Lone Star is not a non-financial investor,” a senior FSC official said. “But an additional review of whether the fund satisfies the full requirement to become the majority shareholder of KEB would be needed.”

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 ($1.7 billion) 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 capital.

The regulator has put off the finalization of whether to approve Hana Financial Group’s scheduled acquisition of Korea Exchange Bank from U.S. Lone Star Funds.

Though the FSC had planned to make public its decision -- endorsement or rejection -- on the takeover deal Wednesday, the regulator said an additional review is needed.

The postponement comes after a ruling of the Supreme Court last week that former CEO of Lone Star Korea could be implicated in stock manipulation of an affiliate of KEB in 2003.

The Supreme Court has sent back the case to the Seoul High Court for retrial, which appears to be embarrassing the FSC.

Hana Financial applied to the FSC for the deal on Dec. 13, and the regulator had been expected to finalize the decision at its regular panel discussion on March 16.

The financial group may have to pay penalties totaling 32.9 billion won a month to KEB’s biggest shareholder Lone Star if it fails to obtain the regulatory approval by the end of March.

Under a memorandum of understanding signed in November, Lone Star Funds plans to sell its controlling 51 percent stake in KEB to Hana this year, which is opposed by a majority of the bank’s workers.

The labor union of KEB is mulling an all-out struggle, including a general strike, to block Hana Financial Group from acquiring the commercial bank, which they fear could lead to a massive restructuring.

On Tuesday, KEB call unionized workers to strike in protest against the regulator’s move to approve Hana Financial’s purchase of KEB.

According to the union, 96.2 percent of the 4,516 union members cast a vote for staging a walkout.

“Workers don’t believe the entity of Hana Bank-KEB can generate a synergy effect,” a union leader said.

He criticized the nation’s fourth-largest financial group as hurrying to take over the bank without due diligence.

“Approval of the merger without resolving significant issues could lead to a major scandal and misfortune,” the union leader said.

An official in the financial market also raised the possibility that the Hana-KEB deal would bring about massive labor strife of the kind that confronted a merger in 2003 between Shinhan Financial Group and then state-run Chohung Bank.

Until the branches of Shinhan and Chohung were integrated in 2006, the latter’s union went on strike several times over about two years.

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