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The nation¡¯s largest lender Kookmin Bank on Thursday got the official nod from offshore fund Lone Star as the preferred bidder for Korea Exchange Bank, beating out Hana Financial Group and late entrant Development Bank of Singapore. Once the sale is complete, Kookmin will become a ¡°superbank,¡± one of the world¡¯s 50 largest with assets of over W270 trillion (US$270 billion) and a customer base of some 30 million. The announcement raised eyebrows when it emerged that the selling price is over W7 trillion, a full W1 trillion more than expected.
Ellis Short, the vice chairman of KEB majority shareholder Lone Star, and Kookmin Bank president Kang Chung-won made the announcement at a press conference in Seoul.
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Ellis Short, the vice chairman of Lone Star, and Kookmin Bank president Kang Chung-won are surrounded by reporters after a press conference at the 63 Building in Yeouido, Seoul on Thursday, when Kookmin was chosen as the preferred bidder for Korea Exchange Bank.
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Kookmin Bank will buy Lone Star's stake for W7.388 trillion at W15,400 a share. This is way above the W14,000, previously expected and has given rise to criticism that an excessive amount of the national wealth will go into the pockets of the offshore fund.
Lone Star, which took over KEB for W1.3 trillion in July 2003, will likely walk away with W4.2 trillion in capital gains after a mere 32 months.
However, a series of investigations hanging over the fund¡¯s head by the National Tax Service, the Fair Trade Commission and the prosecution may throw a spoke in the wheels.
The most contentious issue is tax. Lone Star could reap three times its original investment of W1.38 trillion from the sale tax-free because the subsidiary that owns KEB, LSF-KEB Holdings, is nominally based in Belgium, with which Korea has a dual taxation agreement, and has no place of business in Korea.
But the NTS is looking for ways of taxing the fund by proving that Lone Star does have a de-facto subsidiary here. If it can prove that, the fund is subject to 25 percent corporate tax like any Korean firm and will have to pay W1.635 trillion.
A new tax law before the National Assembly that would come into force on July 1 plus a possible decision by the government to designate Belgium a tax haven could mean that Lone Star has to pay withholding tax, subject to a later refund should authorities decide everything was above board. Thus in case that the fund cannot complete the sale before July 1 and subject to these eventualities, it might have to pay W641.7 billion or 10 percent of the selling price. It would then have to try and wrest the refund from the NTS.
That is why Lone Star is in a hurry to sell KEB. But a criminal investigation related to Lone Star¡¯s original purchase of KEB could delay the deal. An additional hurdle for the fund could arise when the FTC investigates whether Kookmin Bank's takeover of KEB would lead to a monopoly.
(englishnews@chosun.com )
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