U.S. fund thought to be eyeing suit focused on failed deal with HSBC


South Korean financial authorities are closely watching the moves of Lone Star as the U.S.-based buyout fund seems to be preparing for an international law suit against them.

Financial authorities said on Monday that Lone Star handed in a document to the Korean Embassy in Belgium on the previous Tuesday requesting consultations with the Korean government on the issue of alleged damages to its investors.

According to the Financial Services Commission, Lone Star asserted that the Korean government took arbitrary and discriminative measures related to its withdrawal of investment funds from Korea Exchange Bank. Lone Star insists that it suffered a loss as the government arbitrarily imposed taxes on the funds.

Lone Star also claims that the Korean regulators’ unwillingness to approve a string of prospective buyers of Lone Star’s majority stake in KEB forced Lone Star to hold the stake many years longer than necessary and to dramatically reduce KEB’s sale price.

The FSC, however, said through a statement released Monday that the Korean government had dealt with Lone Star’s investments in Korea in a clear and fair way with regard to local regulations and international laws and treaties.

“The government will closely review the problems raised by Lone Star and actively deal with them,” it said.

Government officials forecast that Lone Star’s move may lead to an international lawsuit as the U.S.-based firm, which has been long involved in a dispute with Korea’s National Tax Service, expanded its complaint to include the financial authorities.

Lone Star acquired Korea Exchange Bank in October 2003 and tried to sell it to Kookmin Bank in May 2006, and HSBC in September 2007.

The purchasing price per share agreed between Lone Star and HSBC to buy the KEB shares was 18,045 won, which would have amounted to over 5.93 trillion won, but Lone Star ended up selling the shares to Hana Financial Group for slightly more than 3.91 trillion won.

Officials expect that if Lone Star does sue, the main issue will be the deal between Lone Star and HSBC.

Another question is whether the suit could become Korea’s first Investor-State Dispute case. LSF-KEB Holdings, a Belgium-based subsidiary of Lone Star, is acting on behalf of Lone Star in talks with the Korean government. According to the Korea-Belgium investment guarantee treaty, which came into effect in March 2011, the case could be handled as an investor-state dispute.

By Park Min-young  (claire@heraldcorp.com)