FSC to order Lone Star to sell KEB

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FSC to order Lone Star to sell KEB

Eight years since first acquiring the nation’s fifth-largest commercial bank, Korea Exchange Bank, buyout firm Lone Star has lost its status as KEB’s major shareholder.

The financial regulator the Financial Services Commission is set to order Lone Star Funds to sell the bulk of its stake in KEB after the buyout firm missed a deadline to meet requirements as the major shareholder of the bank.

“This means that Lone Star has lost its status as the major shareholder of KEB under current banking laws,” said an FSC official yesterday.

Last week, the FSC sent a notification to the private equity fund demanding it meet legal requirements as KEB’s major shareholder by Oct. 28, following the Seoul High Court’s Oct. 6 verdict that found the U.S. firm guilty of stock manipulation charges.

Under local banking law, an executive or corporate entity that has been convicted of violating the law during the last five years is banned from owning more than a 10 percent stake in a lender, which means Lone Star must unload the majority of its 51.02 percent stake in KEB.

The FSC is expected to issue a sale order to Lone Star this week, with FSC Chairman Kim Seok-dong telling reporters last week that regulators will “straighten out [the Lone Star problem] within a short period.”

All eyes are on whether the FSC will attach conditions to its order for Lone Star to sell its majority stake, as some civic groups and KEB employees’ union have claimed befits a major shareholder found guilty of a financial crime. Meanwhile, the FSC’s order is expected to prompt Lone Star to exit Korea after two botched attempts. Its previous deals to sell KEB to Kookmin Bank in 2006 and HSBC in 2008 failed to come to pass due to regulatory issues and the global financial crisis. The stake sale order is also expected to pave the way for Hana Financial Group’s acquisition of the KEB stake.

Lone Star’s 4.41 trillion won ($3.90 billion) deal to sell its stake to the No. 4 banking group has been in legal limbo since the FSC indefinitely delayed approval earlier this year.

By Lee Jung-yoon, Yonhap [joyce@joongang.co.kr]

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