The South Korean government is reviewing whether to accept the final terms to settle the longstanding state-investor dispute with Lone Star Funds over the U.S. fund’s 2003 acquistion of now-defunct Korea Exchange Bank (KEB) by Nov. 30 deadline.

According to the sources from the Korean government on Monday, the Justice Ministry will be coordinating government stance with other government offices including the Financial Services Commission, Ministry of Economy and Finance, National Tax Service, and Ministry of Foreign Affairs.

If Seoul chooses to accept the final settlement price, the case whose ruling is due next year at the International Center for Settlement of Investment Disputes (ICSID) will be dropped.

Under the compromise package Lone Star Funds submitted to the Ministry of Justice last week, the U.S. private equity fund claims $870 million in return of calling off the lawsuit it filed with the ICSID in 2012. The term has been adjusted slightly up from $790 million Lone Star Funds revealed in June, but still significantly cut from its original demand of $4.7 billion.

Lone Star demanded an answer by Nov. 30, offering to immediately suspend the litigation process if it can start negotiation directly with Seoul.

In 2003, Lone Star Funds acquired a 51.02 percent stake in financially-troubled KEB amid the Asian financial crisis. The private equity fund tried to sell its stake but was obstructed due to alleged stock manipulation allegations.

In 2012, Lone Star Funds managed to sell its stake to Hana Financial Group and after that, it filed a $4.7 billion investor-state dispute against the Korean government, claiming that it suffered losses as the government delayed its approval of its sale of KEB and imposed excessive tax on its investment gains.

The U.S. hedge fund has been trying to conclude the dispute so that it can re-enter business in Korea.

But given its hardline stance so far, Seoul is unlikely to accept the settlement term as it is confident of winning the arbitration.

Under the latest settlement offer, Lone Star Funds said it would drop the $1.7 billion claim over its failed deal with HSBC for the sale of KEB in 2008. The Korean government sees this as it having no related responsibility.

The Korean government also holds a stance that it did not pressure to lower sale price upon Lone Star Funds sales of KEB to Hana Financial Group.

If the Korean government rejects the out-of-court deal, the ICSID will proceed with the case review, The ICSID held a two-day video hearing session in October with Lone Star Funds and Korean government representatives. The hearings could be held two to three more times. The ICSID is expected to give a final ruling on the case as early as next year.

By Lee Seung-hoon, Yoon Won-sup, Park Yoon-ye, and Lee Eun-joo

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