Hana, Lone Star in Talks For Smaller KEB Deal

Hana Financial Group is in talks with U.S. private equity firm Lone Star to buy a smaller, 10% stake in Korea Exchange Bank, Reuters reported Friday. Hana agreed to buy Lone Star’s 51% stake in KEB late last year, but the deal has been beset by regulatory and legal hold-ups, and disagreements over pricing. Buying a 10% or smaller stake would showing Hana’s commitment to the deal and keep the parties at the negotiation table to give them time to save the deal, Reuters wrote.

PRESS RELEASE

(Reuters) – South Korea’s No.4 lender Hana Financial Group is in talks with U.S. private equity firm Lone Star to buy a smaller, 10 percent stake in Korea Exchange Bank (KEB) as it tries to keep its $4.3 billion deal alive, a source said on Friday.

Hana agreed to buy Lone Star’s 51 percent stake in No.5 ranked KEB late last year, but the deal has been held up by regulatory and legal delays, and disagreements over pricing.

A deadline to complete the deal passed earlier this week, putting what could be South Korea’s biggest banking transaction in doubt, but both parties agreed to continue talks.

Buying a 10 percent or smaller stake would showing Hana’s commitment to the deal and keep the parties at the negotiation table to give them time to save the deal, without requiring regulatory approval.

But price remains a sticking point, the source who is familiar with the matter said. KEB share prices have tumbled by nearly 40 percent from the agreed 14,250 won a share they announced in November.

“(Both parties) are looking into the (10 percent) stake takeover matter very positively… and there’s uncertainty on prices as they keep negotiating on it,” said the source, who declined to be identified due to sensitivity of the issue.

Lone Star has also been demanding a higher price for the KEB stake to reflect gains from the bank’s recent sale of a stake worth around 1 trillion won ($918 million) in Hyundai Engineering & Construction , another source close to the deal said earlier.

Paying a hefty premium to the current share price of KEB may further irk Hana investors, who have already punished Hana shares by sending its shares down 10 percent since regulatory delays on May 12.

Shares in Hana dropped 2.1 percent on Friday, while KEB rose 1 percent.

Analysts said talks on a smaller deal showed Hana was committed to finalising a deal with Lone Star, but expressed doubts whether it would be completed.

“It would be difficult for Hana to pay a lot more than the current share price of KEB but I think (Hana) played this card simply to keep both committed to the deal,” said Ku Yong-uk, an analyst at Daewoo Securities.

Lone Star was not immediately available for comment.

A Hana official said it was unlikely to announce the results of negotiations with the U.S. fund this weekend as they needed to be deliberated by its board members. He declined comment on the prospects of a deal for a smaller stake.

Lone Star bought its KEB stake in 2003 and had since two failed sales attempts to Kookmin Bank for $7.6 billion in 2006 and HSBC for $6.3 billion in 2008 when financial crisis hit and the valuation of KEB has come down considerably.

Singapore’s DBS twice held talks but did not come to any agreement while Australia and New Zealand Banking Group entered the fray in 2010, before losing out to Hana.

The sale has been delayed by a series of investigations as to whether Lone Star paid capital gains taxes, whether KEB’s losses were inflated to make it cheaper and investigations and prosecutions of various Lone Star and KEB officials as well as government officials.

The latest case involving alleged stock manipulation by a former head of Lone Star’s Korean operation is due to go back to the Seoul High Court on June 16. ($1 = 1089.500 Korean Won) (By Ju-min Park and Lee Chang-ho; Editing by Jonathan Hopfner and Lincoln Feast)