KEB sale merits no delay

A Seoul high court ruled last week that the U.S. buyout fund Lone Star was guilty of manipulating share prices, making it unqualified to remain the largest shareholder of Korea Exchange Bank and removing a legal hurdle that was obstructing the sale of the bank.

Under Korean law, Lone Star, when penalized for breaking financial regulations, loses its majority ownership. The fund must sell at least 41 percent of its 51 percent stake in KEB.

While it could potentially retain its stake if it appeals to the Supreme Court, Lone Star now has the option of accepting the lower court’s ruling and proceeding with a planned sale to Hana Financial Group.

Authorities refused to approve the acquisition until Lone Star’s legal dispute was entirely settled. Hana and Lone Star have extended the deadline for the deal to Nov. 30.

A green light from the authorities would finally set the stage for the deal to go ahead, but authorities now face a new dilemma.

In November, Hana offered 4.69 trillion won ($4 billion), or 14,250 won for each share in the bank, with a 10 percent management premium on top of 13,000 won equity prices. The problem is that the share price has since plummeted by almost 50 percent.

Public sentiment is also against Lone Star, as the Texas-based buyout fund has already pocketed nearly 3 trillion won in dividend profits. It would add profit of about 1 trillion won from selling Hyundai Engineering & Construction and Hynix, and a public backlash could be expected if the fund walks away with a sales profit roughly double the current market price.

Civilian groups and some lawmakers are demanding that authorities order the sale to proceed by setting a specific timeframe and equity sale value to restrict Lone Star’s profit-taking.

But regardless of Lone Star’s behavior, authorities should not be tempted to punish foreign capital in this manner, as such a punitive order is without legal precedent. It would be better if Hana were to renegotiate a lower purchasing price.

Authorities must act decisively. They are apparently planning to review Lone Star’s qualifications and decide whether to order it to sell its stake next month.

They must not delay any further, as KEB has already been stuck in limbo too long. Its sale to Kookmin Bank should have been finalized in 2006.

Now is not the time to repeat the same mistakes of the past.