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A standoff between prosecutors and the judiciary looks set to continue as a Seoul court considers the yet another arrest warrant application for the head of Lone Star Advisors Korea Yoo Hoe-won on Wednesday. The application before the Seoul Central District Court is the fifth for Yoo, whom prosecutors accuse of a hand in shady dealings surrounding Lone Star¡¯s 2003 takeover of Korea Exchange Bank at a dumping price. The court has already hinted it will turn down the request, saying it cannot change ¡°a 40-year-old judicial precedent.¡± Prosecutors in turn warned they will appeal to the Supreme Court if the lower court will not grant the warrant. A prosecutor said investigators are ¡°determined¡± to get a warrant and question Yoo, who they say played a leading role in the U.S. private equity fund¡¯s lobbying of politicians and public officials over the dubious sale.
Meanwhile, prosecutors indicted KEB and its major shareholder LSF-KEB Holdings SCA on charges of manipulating the stock price of the bank¡¯s credit card unit. LSF-KEB Holding SCA is a Brussels-based paper company headed by Lone Star¡¯s legal advisor Michael Thompson and was established by Lone Star when it took over the bank. Senior Prosecutor Chae Dong-wook said KEB earned W22.6 billion (US$1=W935) and Lone Star W17.7 billion through the stock-price manipulation.
The investigation is affecting Lone Star¡¯s attempt to sell off KEB. Lone Star chairman John Grayken told Bloomberg on Friday the firm will now look into the bank¡¯s financial state to see if it is capable of distributing dividends, suggesting the firm is trying to recoup its W1.38 trillion investment from dividends. That will be a crucial variable in stalled negotiations for the re-sale. It is estimated that KEB is capable of paying out between W1.9 trillion and 2.1 trillion in dividends late this year. If it does, it will net Lone Star profits of W1.3 trillion or so, since it holds a 64.62 percent stake in the bank. But the payout would send the bank¡¯s corporate value plunging, which could scupper negotiations for the sale.
The dividend payment needs approval from Kookmin Bank, which is the preferred bidder while the sales contract between Kookmin and the offshore fund still holds good. Kookmin is caught in a dilemma. If it approves, it would suffer a storm of public criticism for helping Lone Star make its exit from Korea with enormous profits. If it refuses, Lone Star will likely scrap its plan to sell the bank.
(englishnews@chosun.com )
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