Lone Star Considers KEB Sale

SEOUL, South Korea (AP) – HSBC Holdings said Monday it is in talks to buy a controlling stake in Korea Exchange Bank, currently held by U.S. private equity group Lone Star Funds.

“The discussions are ongoing,” London-based HSBC Holdings PLC said in a statement.

HSBC, the world's second-largest bank, said that its subsidiary, The Hongkong and Shanghai Banking Corp., was engaged in the talks “about the possible acquisition of a majority stake in Korea Exchange Bank.”

Dallas-based Lone Star owns 51 percent of KEB, South Korea's sixth-largest bank.

The buyout fund had no immediate comment, said Michael Breen, president of Seoul-based Insight Communications Consultants, which handles public relations for Lone Star.

“Lone Star has been in discussions with several potential buyers and some of those discussions have gone quite a long way,” Breen said.

Lone Star's chairman, John Grayken, said last month that the fund was not involved in any serious talks about the sale of its majority stake.

The Financial Supervisory Commission, South Korea's financial regulator, declined to comment.

Pending legal cases surrounding Lone Star's purchase of Korea Exchange Bank in 2003 and a nationalistic backlash in some political and media circles against foreign buyout funds have so far prevented another sale of KEB.

A Seoul court is investigating allegations that Lone Star manipulated the stock price of KEB's credit card unit in 2003 so that the bank could take it over on the cheap.

Lone Star has consistently denied any wrongdoing, calling the allegations groundless and politically motivated. The fund has emphasized its role in nursing the troubled KEB back to financial health after acquiring it.

Probes into the deal forced Lone Star last year to terminate a contract to sell its controlling stake to South Korea's top lender, Kookmin Bank.

In June, Lone Star sold a 13.6 percent stake in the bank in block sales to institutions. The company at the time said it was holding its remaining stake of 51.02 percent for sale to a strategic investor.

Lone Star's purchase of KEB and subsequent efforts to sell its stake have drawn criticism in South Korea, where suspicions of foreign investment funds run deep. The foreign funds are widely seen as out to make a quick profit at the expense of troubled local companies.

Shares in KEB rose sharply, gaining 7.3 percent to close at $15 (13,950 won) in Seoul.

HSBC shares dipped 0.6 percent to 896.5 pence ($17.80) in early afternoon London trading.