Korean government seeks annulment of $217mn Lone Star ruling

2023.03.14 11:05:02 | 2023.03.14 11:06:12

[Photo by MK DB]이미지 확대

[Photo by MK DB]

The South Korean government is seeking to file an annulment with the International Centre for Settlement of Investment Disputes (ICSID) of an investor-state dispute settlement (ISDS) ruling to pay $216.5 million to U.S. private equity firm Lone Star Funds over a sale of Korea Exchange Bank, now KEB Hana Bank.

According to multiple industry sources on Monday, the arbitration tribunal of the ICSID is likely to give a ruling on the correction request made by the Korean government as early as within one month. Korea claimed in October last year that the award of $216.5 million in a ruling in August “is excessive” and that “the interest has been repeatedly calculated.”

If the tribunal rules in favor of the Korean government, the compensation amount for the principal will be reduced to $216 million.

Last year, the arbitral tribunal of the ICSID ruled that the Korean government pay $216.5 million to Lone Star, which demanded in May 2012 that Korea pays $4.68 billion to the private equity firm as it “breached the agreement between Korea and Belgium-Luxembourg Economic Union concerning investment and delayed the sale procedure of KEB and imposed excessive taxes.”

Industry insiders note that the result of the review for the correction will come out soon given that it has been five months since the Korean government raised a correction request. It usually takes three to four months for the results to come out but the review is taking more time as the Korean government and Lone Star continue to submit documents for the review.

Lone Star is known to have raised an issue related to the stock price and exchange rate that have been the base to calculating the compensation amount.

The Korean government plans to file a motion that seeks annulment of the order of the entire compensation when the tribunal renders a decision. An application for an annulment should be filed within 120 days from the date of the decision on the correction. If the tribunal’s decision comes as early as sometime this month, the government will be required to file a motion by July.

Lone Star is likely to take similar action, which can prompt a second round in the decade-long legal dispute between the Korean government and Lone Star.

It is presumed that it will take one to two years for the annulment result. The compensation amount can be readjusted.

The Korean government is expected to seek a complete annulment, but even if the motion is not accepted fully, it is seeking to deduct 22 percent of withholding corporate tax from the compensation, which will reduce the amount to $168.9 million based on the ruling in August last year.

Lone Star may take action in response to the Korean government’s move, leading to an administrative suit or another ISDS case.

By Hong Hye-jin and Chang Iou-chung

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