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A question mark hangs over the contract for sale of Korea Exchange Bank between U.S. buyout fund Lone Star and British banking giant HSBC as a key deadline expires at the end of this month. Some Korean industry insiders say KEB has to go on the auction block again.
They say the deal with HSBC, struck last September, should be scrapped since it was unfair and done without the participation of Korean banks. Small KEB shareholders on Thursday said the current terms and conditions are advantageous only to Lone Star, the largest shareholder, so the bank should be put to tender again giving domestic banks a fair opportunity.
The contract between Lone Star and HSBC is private and both want to maintain its integrity, so it is improbable that anything will change.
In September 2007 when they signed the contract, Lone Star and HSBC agreed on the proviso that they could scrap the deal if the Korean government does not approve it by late April this year. When the Chosun Ilbo on Thursday asked if they would extend the contract, senior officials of both Lone Star and HSBC said there was ¡°no change.¡±
A Lone Star official said, "There is no change in our belief that HSBC is the best option." An HSBC official said there was ¡°no change in our intention to take over KEB.¡± They added HSBC chairman Stephen Green will soon call a board meeting to decide on the contract extension.
Observers speculate that Lone Star has no reason to take the initiative to scrap the contract because it considers HSBC a safer business partner than any Korean bank, where there would be a belligerent union, controversy over a drain of national wealth and other issues.
Regardless of the outcome of the ongoing trial of Lone Star, the only measure the Korean government can take is to strip Lone Star of its status as KEB's largest shareholder and order it to sell its stake in the bank, so it seems highly likely that KEB will go to HSBC one way or the other.
The high court is currently reviewing the case against Lone Star over alleged manipulation of KEB Card stocks after Lone Star was found guilty in a district court. A district court will meanwhile make a decision around the end of this year on allegations that Lone Star bought KEB at a dumping price in 2003. Industry insiders predict that once the high court rules around May or June, Lone Star will forgo an appeal to the Supreme Court, the government will strip Lone Star of its status as KEB's largest shareholder and order it to sell -- which it will do, to HSBC.
Kookmin Bank, which previously failed to buy KEB as a result of Lone Star's unilateral abrogation of a contract, remains sour, saying Lone Star played an unfair game, excluding domestic banks that were hamstrung by anti-foreign capital sentiment in the country at the time. Kookmin executives are calling for the HSBC deal to be scrapped and an international tender open to all domestic and foreign contenders to be called.
Some experts want the government to strike a big deal with Lone Star. They say it will be hard for Lone Star to ignore a government guarantee of a safe escape for a new international bid. But that scenario could again give the impression that Seoul discriminates against foreign investors -- a tough call for a government elected on a business-friendly platform.
(englishnews@chosun.com )
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