Lone Star Funds has offered to settle its decade-old dispute with the South Korean government over its stake sale of the now-defunct Korea Exchange Bank (KEB), by axing its damage claim to $790 million from the original $4.7 billion.
The Dallas-based private equity fund had previously sought compensation for losses incurred from what it argued was the government’s delay in the approval of its sale of KEB shares to HSBC and Hana Financial Group. Under the latest settlement offer, it would drop the $1.7 billion claim over its failed deal with HSBC, but still demand $590 million in compensation for its delayed sale to Hana, according to multiple sources familiar with the matter.
Lone Star is also seeking $200 million to cover for what it claims as overcharged taxes on its divestments in Korea.
The Korean Justice Ministry said Thursday it has yet to receive the out-of-court settlement proposal from Lone Star and would make the review and judgment “upon conditions.” On the previous day, it accused Lone Star of trying to mount a media campaign in its favor after the case was reopened upon reorganization of the bench at the International Center for Settlement of Investment Disputes on Tuesday.
Lone Star claims it suffered $400 million to $700 million in losses from the delayed sale of KEB to Hana Financial Group. In 2012, the private equity firm sold its 51 percent stake in KEB to Hana for about $3.5 billion after lowering the selling price by about $830 million, which it argues was due to stalled regulatory approval. Lone Star says the actual loss was $430 million after counting in the $400 million of dividends it received, but when factoring in the 5 percent interest, damages relating to the delayed sale comes to a total of $590 million.
Lone Star agreed to drop the $1.7 billion in damages it was seeking for its failed sale to HSBC in 2008. The two companies had struck a preliminary deal for the sale of KEB shares in 2007 but were held back by Korean regulators. The $6 billion deal eventually fell through after the Lehman Brothers collapse in September 2008, and Lone Star has since held the Korean government accountable for the botched sale.
KEB’s stake sale required government approval as the semi-state bank had been bailed out in the wake of the Asian financial crisis in 1997-1998.
Lone Star is also demanding $200 million for what it claims to be excessive taxation from the KEB sale. It was taxed for its sale of various real estate properties, including Star Tower in 2004 and the Keukdong Construction headquarters in 2007, as well as its remaining KEB shares to Hana in 2012. Lone Star had made all its acquisitions in Korea through a Belgian subsidiary, reportedly to take advantage of the favorable tax and investment treaties between Belgium and Korea.
Industry and legal experts say that even in the case of a complete victory for Lone Star, it would only be able to receive about $2 billion, lower than its initial claim of $4.7 billion. They add that chances of Lone Star’s complete win have also slimmed as the case has failed to reach a conclusion by its original deadline of November 2018.
By Choi Seung-jin, Lee Seung-hoon, Chung Joo-won and Kim Hyo-jin
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