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Lone Star on Thursday announced it is terminating a deal to sell its controlling stake in Korea Exchange Bank to Korea¡¯s largest lender Kookmin Bank, citing the ongoing criminal investigation of the original sale to the offshore fund. The decision scuppers Kookmin¡¯s hopes of taking over KEB and is fueling charges of xenophobia in Korea¡¯s financial community. In a press release on Thursday afternoon, Lone Star said it terminated the deal struck in May this year to sell its W6.9 trillion (US$1=W930) controlling stake to Kookmin. The two sides have been in talks to extend the Sept. 16 negotiation deadline as the investigation into its 2003 purchase of KEB dragged on.
"We have concluded that we cannot move forward with the sale of KEB to Kookmin Bank due to the continuing investigations surrounding Lone Star's investment in KEB and KEB's subsequent rescue of its credit card subsidiary, which have been extended several times and now have no firm completion date,¡± it quoted Lone Star chairman John Grayken as saying. He said the firm will "again consider our strategic options" once the investigation is complete. "Until then, we will continue to vigorously defend our company and our officers against the prosecutors' groundless accusations.¡± Lone Star is expected to seek a new bidder for KEB or recoup returns on investment from dividends in the long term.
Foreign investment
The international business press warns the criminal investigation into massive irregularities in Lone Star's purchase of KEB at a dumping price will scare away foreign investment in Korea. The Wall Street Journal on Wednesday said Korean politicians and others see foreign companies like Lone Star "as profiteering interlopers, enriching themselves at the expense of locals,¡± saying such ¡°nationalistic sentiments¡± were ¡°especially acute.¡± The Lone Star chairman alleged the chief reason for the investigation ¡°is the political backlash as a result of the gain we stand to make on the investment. We would not have this problem if we were making a 10 percent profit.¡±
Reuters said the deal was ¡°regarded as a litmus test for foreign investment, which has been on the decline since last year amid a growing backlash against big profits made by foreign funds following the 1997-98 Asian financial crisis.¡± The investigation was spreading the perception among foreign investors that they cannot just walk away from Korea with fat profits. "We are very concerned about foreign investment in Korea,¡± the Wall Street Journal quoted Mark Mobius, who oversees emerging-markets portfolios at U.S. fund Franklin Templeton Investments, as saying. "People should start to speak out, because we are all at risk.¡±
Reuters on Wednesday quoted analysts as saying Lone Star ¡°is likely to focus on extracting dividends from KEB, which could reach W1.3 trillion (US $1.4 billion) at a maximum, to appear its investors before putting the bank up for sale again.¡± The WSJ said the private equity fund has been considering the termination because the value of KEB has risen above the $700 million price the fund and Kookmin agreed in May. That would mean Lone Star will hike the selling price as well as squeeze all the dividends it can out of KEB.
(englishnews@chosun.com )
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