The Korea Herald

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Regulators troubled over Lone Star ruling

By 김연세

Published : April 26, 2011 - 19:24

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FSC approved fund’s buyout of KEB, but consensus is that decision was wrong


The long-standing issue involving U.S. Lone Star Funds is embarrassing financial regulators again this year.

The Financial Services Commission and the Financial Supervisory Service have recently shown off regulatory power by taking urgent countermeasures against several accidents including cyber system breakdown and hacking in several financial companies.

But it seems the regulatory bodies feel heavily burdened on close attention among the public about their coming ruling on whether Lone Star was eligible to buy Korea Exchange Bank in 2003.

Though FSC Chairman Kim Seok-dong had said regulators would finalize the issue before May, FSS Governor Kwon Hyouk-se Tuesday hinted at another postponement during his meeting with reporters.

Kwon said he has not reviewed the details probed by FSS staffers, adding further discussion with the final decision-maker FSC is also necessary for ruling the fund’s eligibility as the biggest shareholder of KEB.

Though a committee of the FSC had planned to announce its ruling on Lone Star by holding a regular meeting Wednesday, there is a high possibility that the issue will be delayed until next month.

The key point is whether the buyout fund was ― and has been ― a financial investor which is entitled to hold more than a 50 percent stake in a Korean bank.

Most of all, there are a few economists claiming Lone Star is a financial investor, criticizing the FSC’s former regulatory ruling in March that it believes the fund was “not a non-financial investor.”

Amid vast interest in the market and ongoing protest among unionized workers of KEB, even the FSC did not announce that it was a financial investor last month.

After promising further research on the issue, regulators asked 10 major law firms to make legal reviews on the fund’s eligibility.

To make matters worse for the regulators, several of the 10 law firms ― in their report to the FSS ― claimed that Lone Star has not been a financial investor but a non-financial investor.

Non-financial investors, or industry-oriented capital, are barred from controlling the majority stake in a Korean financial company under local laws.

Apart from the law firms’ documents, several other factors are pressuring regulators to probe the U.S. fund’s eligibility more sincerely and frankly.

Rep. Im Young-ho of the opposition Liberty Forward Party has said that he uncovered that Lone Star was a non-financial investor in 2003.

“We’ve analyzed the documents submitted by Lone Star to the FSC on Sep. 2, 2003,” Im said. “The ratio of non-financial capital accounts for 25.17 percent of its total equity capital at that time.”

While the law stipulates that a company whose non-financial capital ratio exceeds the 25 percent mark is a non-financial investor, Lone Star had argued that its ratio stayed at 21.26 percent.

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