With regulatory hurdles threatening to derail the $4.1 billion buyout of Korea Exchange Bank, South Korea’s Hana Financial Group and buyout shop Lone Star are working to extend the planned deal, Reuters reported. Before the deal can proceed, a court must meet to rule on stock price manipulation charges involving KEB’s current majority owner Lone Star.
(Reuters) – South Korea’s Hana Financial Group is working with U.S. buyout fund Lone Star to extend its agreed $4.1 billion transaction to buy a controlling stake in Korea Exchange Bank with the deal on the brink of collapse due to regulatory hurdles.
Chairman Kim Seung-yu told reporters after a board meeting on Friday that Hana is seeking options to clinch the deal but will still pursue overseas M&A targets apart from the KEB takeover transaction.
Hana shares fell 15 percent on Friday, a day after regulators delayed approving its planned purchase of a 51 percent stake in KEB due to legal disputes.
The purchase of KEB is crucial for Hana, South Korea’s fourth-largest financial group, to help it compete with larger players in a competitive market. The buy will propel it into the top three and help it overtake Shinhan Financial Group.
With no certain timetable set when a court will meet to rule stock price manipulation charges involving current majority owner Lone Star , the agreed deal between Hana and the U.S. private equity firm now hangs in the balance.
Chairman Kim Seung-yu said it might be difficult to extend the deal by more than six months, the current contract period.
The delay dealt a blow to the fund’s attempt to exit from South Korea after years of failure and could trigger anger from investors who coughed up 1.46 trillion Korean won ($1.4 billion) for Hana to fund the purchase of a 51 percent stake from Lone Star.
“A share buyback can be considered,” Kim said, in a move that could to comfort angry shareholders.
Even if FSC rules that Lone Star is unqualified and orders the fund to cut its holding in KEB to 10 percent or lower, the banking law does not specify procedures or prices to sell the stake which Lone Star has to follow.
Kim said the stake takeover can be valid even if Lone Star was asked to shed part of its stakes.
Hana shares tumbled by the intra-day limit of 15 percent to its lowest in five months in a flat broader market . KEB shares jumped 13 percent on expectations it may become a fresh bid target.
“Hana is tumbling on worries its deal to buy KEB may be called off, thus losing a precious opportunity to increase its size and stand neck in neck with its larger rivals like KB, Shinhan and Woori,” said Hwang Seok-kyu, an analyst at Kyobo Securities.
“For Hana, KEB was a very attractive target, and it just may be blown off. KEB is bouncing back again after prolonged underperformance following the deal announcement. Certainly there are expectations that KEB may once again appear in the deals market.”
On Thursday, South Korean regulators put off a decision on whether stake seller Lone Star is fit to be KEB’s top shareholder, which threatens to derail what could be the country’s largest banking deal.
The regulator’s review was dealt a blow in March when the Supreme Court overturned a lower court’s ruling that Lone Star’s former head of Seoul operation was not guilty of stock price manipulation in relation to a unit of KEB.
The county’s top financial watchdog said on Thursday it would monitor court proceedings before making a ruling on the deal.
A Seoul High Court official told Reuters on Friday that the timeline had not been set up when to reopen the case.
With the regulatory approval for the deal now unlikely in May, both Lone Star and Hana would be free to walk away from the deal if the transaction is not completed by May 24.
“A failed deal after such a large fundraising may lead to potential lawsuits by investors who feel bad,” said a fund manager who participated in the cash call from Hana.
“But it may be hard for them to actually decide to take a legal action because they are the one to decide to invest and take all potential risks,” he said.
(By Ju-min Park; Additional reporting by Jungyoun Park; Editing by Jonathan Hopfner and David Chance)