Financial regulators’ planned action against Lone Star Funds is expected to affect the fate of Kim Seung-yu, the chairman of Hana Financial Group, which is seeking to acquire Korea Exchange Bank from the U.S.-based equity fund.
Early this year, group board members allowed Kim, who had taken on the post of Hana Bank CEO or Hana Financial chairman since 1997, to extend his term for the top post by one more year until March 2012.
The board members’ endorsement of the 68-year-old chairman’s tenure extension was attributable to the necessity of developing the preliminary deal between the group and Lone Star to trade KEB shares in November 2010, according to Hana spokespeople.
Kim Seung-yu, chairman of Hana Financial Group (Bloomberg)
The board members voted for his extension unanimously. But Hana has yet to receive regulatory approval from the Financial Services Commission as the Supreme Court strongly hinted in March that Lone Star manipulated stocks of KEB’s credit card affiliate in 2003.
The issue of irregular stock trading of KEB’s biggest shareholder has emerged as a main hurdle for the Hana-Lone Star deal and the U.S. fund was eventually convicted of stock manipulation with a guilty verdict on Oct. 6.
While unionized KEB workers continued to call for Hana Financial to scrap the deal with a “culprit,” the group maintained its position by renewing the contract expiry with the fund to Nov. 30, from the initial one of May 24.
Further, the financial group issued loans totaling 1.5 trillion won ($1.3 billion) to Lone Star, which has allegedly invited regulatory investigation.
The success or breakup of the deal is now up to the FSC, which is entitled to order the fund to sell most of its stake in KEB following the court’s ruling.
There were speculations that the regulator would “simply” order Lone Star to dispose of its shares without attaching any punitive conditions, which may pave the way for the fund to select a stake acquirer like Hana Financial.
Under the scenario, the buyout fund could enjoy huge management premiums according to the bilateral contract. This could also be regarded as Kim’s success and be linked to his term extension.
Or he could choose to resign honorably with possible acclamation among board members and the group’s staff.
But the situation is not favorable to Kim amid growing calls from a variety of social sectors that the FSC should order Lone Star to sell the KEB shares on the stock market, banning the fund from raking in management premiums.
A senior FSC official also said the regulator is taking the possible punitive action into consideration, adding that it cannot neglect legal opinions, involving an issue that the fund has reportedly been a non-financial investor ineligible to own a local bank, from law professors, lawmakers and the Constitutional Court.
As the FSC has been delaying its final decision, the contract expiration date of Nov. 30 has been drawing attention again.
“Another extension of the contract with Lone Star will be a heavy burden on chairman Kim,” a banking research analyst said.
Should the FSC decide to take disciplinary measures on Lone Star, Kim will have no choice but to resign shortly, he predicted.
The chairman told reporters last Friday that he believes Hana Financial has been “in the same boat” with Lone Star.
By Kim Yon-se (email@example.com