FSC to order Lone Star to sell KEB shares

Regulator says sale terms will be decided later


The Financial Services Commission said Thursday that it is considering ordering Lone Star Funds to sell a 41.02 percent of its total 51.02 percent stake in Korea Exchange Bank.

The regulator’s policy comes shortly after the Seoul High Court ruled that the U.S.-based buyout fund and the former CEO of Lone Star Funds’ Korean unit guilty of manipulating stocks of Korea Exchange Bank’s credit card affiliate.

If Lone Star does not take any legal appeal within seven days, the fund will be banned from exercising voting right for the 41.02 percent stake, the FSC said in a statement.

“(Through several processes,) the FSC will then instruct Lone Star to dispose of the 41.02 percent stake in KEB,” it said.

A Korean bank’s biggest shareholder which violates the nation’s banking laws will be disqualified from owning the lender, being barred from holding more than a 10 percent stake.

But the regulator said the “method” of the share disposal will be determined via legal review and discussion among panels.

The FSC also said the schedule including ordering stake sale has yet to be fixed, adding, “Detailed timetable will be fixed at a panel discussion.”

An FSC official said the key issue is whether the financial regulator will specify the method of the stake sale in detail to prevent Lone Star from handing over their KEB shares to a particular investor.

In May, FSC Chairman Kim Seok-dong said it would not be easy to order Lone Star to sell its stake in KEB by directing “concrete” sale terms.

“(Under the scenario of an enforced sale), the FSC is only entitled to set a deadline (for stake disposal),” Kim told reporters at a seminar.

He downplayed speculation that the authorities could ban Lone Star from selling most of its shares to a particular investor such as Hana Financial Group which made a preliminary contract with the fund to trade KEB shares last November.

Lone Star signed a preliminary deal with Hana Financial Group to trade KEB shares in November 2010. The FSC delayed the endorsement -- or rejection -- process due to the ongoing trial at the court.

If the FSC simply orders a stake sale, Lone Star may choose to sell the dominant stake to Hana Financial while KEB’s stock price stays quite low compared to last November. The fund could also receive payment for management premium from Hana Financial.

But under the scenario that the FSC instructs Lone Star to sell shares on the stock market to anonymous investors at market-determined prices, Hana Financial could possibly fail to take over KEB.

Another possibility is further postponement of the KEB sale with possible legal countermeasures from Lone Star.

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