[Editor’s Note: According to various newspaper sources, HSBC has agreed to acquire a 51.02 percent stake in Korea Exchange Bank (KEB) from Lone Star, the US buyout firm. The deal announced is already raising many eyebrows in the Korean financial and legal community because it is likely that the Financial Supervisory Commission of Korea will hold its review of the deal (whether to approve it) until the pending court case surrounding the Lone Star’s purchase of its stake in KEB (occurred in 2003) is finally resolved. Currently, the Seoul District Court is reviewing whether a former governmental official colluded with the KEB officials in manipulating the bank’s value prior to Lone Star’s acquisition of the KEB stake. Even if the district court rules that there was no such manipulation, the case may take as long as up to 3 years until final resolution if the case is sent to the Seoul High Court and then to the Supreme Court of Korea. However, according to the deal announced, HSBC’s agreement to buy the stakes in KEB is subject to satisfaction of certain key conditions by end-April of 2008, including obtaining regulatory approvals from the Financial Supervisory Commission and the Fair Trade Commission. If those conditions are not satisfied by such date, then either HSBC or Lone Star could nullify the deal, which leads to the speculation that the KEB deal between HSBC and Lone Star could be a “goner’ as early as April 2008. Then, why HSBC has pushed this deal despite knowing that Korean regulatory authorities will not act quickly to approve the deal because of the murky legal situation surrounding Lone Star’s prior purchase of KEB stakes? It is not so clear at this point. What seems clear, however, is that Korean government does not look favorably upon HSBC, which has already attempted to purchase stakes in other domestic banks (Korea First Bank and Seoul Bank) in other occasions and failed and now appears to be making aggressive, but unreasonable moves towards expanding its presence in Korea. Please read the following short news article on the above-noted deal between HSBC and Lone Star.]

[Source: Reuters; September 4, 2007]

HSBC bids in S. Korea

HSBC has agreed to buy a 51 percent stake in Korea Exchange Bank from the US private equity firm Lone Star for about USD 6.3 billion in cash as it attempts to increase its profile in Korea. The deal is subject to governmental and regulatory approvals, and HSBS said that the purchase price would increase by USD 133 million if the deal was completed after January 31, 2008. HSBC may have a long, tough battle to get its purchase approved. Korean governmental authorities have said that they would delay a review of the deal until all legal issues surrounding KEB are resolved. Korean prosecutors say a former government official colluded with a lawyer hired by Lone Star and KEB’s chief executive to inflate KEB’s losses, allowing Lone Star to buy it in 2003 for around USD 900 million less than it was worth. A Seoul District Court is reviewing the allegation.