Bankers say delay in KEB sales will further reduce U.S. buyout fund’s profits


Chances are slim that Lone Star Funds will appeal to the Supreme Court for the Seoul High Court’s Oct. 6 verdict that the U.S.-based fund manipulated Korean stocks in 2003, said sources within the financial industry.

Lone Star is allowed to take legal countermeasures by midnight on Oct. 13.

If the fund applies for an appeal through the Seoul High Court, the lower court has to hand over trial-related documents to the Supreme Court within 14 days.

But bankers say an appeal could be in vain for the buyout fund.

“Many observers in the banking sector say the possibility of Lone Star’s appeal is low,” a commercial banker said Monday.

A source at Hana Financial Group, which signed a preliminary deal with Lone Star last year to take over a majority stake in Korea Exchange Bank, also shared the prediction.

In particular, the Hana Financial banker predicted that the Supreme Court will eventually “dismiss” the appeal from the fund, if any.

The banking sources also said there are few noteworthy factors, which could make the Supreme Court review the case from the beginning again by accepting an appeal.

In the stock brokerage sector, Daishin Securities said Lone Star will see profitability from sale of KEB shares ― to Hana Financial or other investors ― drop if it takes further legal steps on the stock-rigging case.

“The possibility of its appeal to the Supreme Court is very low,” A Daishin Securities analyst said.

Citing the fund’s planned retrieving of its investment in KEB, he said the profitability, dubbed internal rate of return, will fall if the KEB sale process is further delayed.

It seems that financial regulatory officials also view that the possibility of Lone Star’s legal action is low.

“But as there is still feasibility, our stance is to take a wait-and-see attitude at least until Oct. 13,” an official of the Financial Services Commission said.

In case of an appeal from the U.S. fund, the FSC will make public its updated stance, he said.

The FSC said last Thursday that it is considering ordering Lone Star Funds to sell 41.02 percent of its total 51.02 percent stake in KEB.

The regulator’s policy came shortly after the Seoul High Court ruled that the fund and the former CEO of Lone Star Funds’ Korean unit guilty of manipulating stocks of KEB’s credit card affiliate.

A Korean bank’s biggest shareholder which violates the nation’s banking laws is disqualified from owning the lender, being barred from holding more than a 10 percent stake.

By Kim Yon-se (kys@heraldcorp.com)