FSC fails to gain public consent on its ruling



Lone Star Funds lost the status of biggest shareholder of Korea Exchange Bank on Saturday as the U.S.-based equity fund failed to meet the eligibility requirements set by financial regulators.

The fund’s position of losing, or being banned from exercising voting rights for its stake exceeding 10 percent, comes after a recent court ruling in Seoul that Lone Star engaged in manipulation of stocks of KEB’s credit card affiliate in 2003.

On Monday, the Financial Services Commission is scheduled to make prior notification to Lone Star that it would order the fund to dispose of 41.02 percent of its 51.02 percent stake in KEB.

After the prior notice of about a week, the regulator will finally order the stake sale through the panel discussion.

But FSC officials said the “sale terms” for the stake sale order have yet to be determined, adding that the prior notification does not involve the key issue between “simple” stake sale and “punitive” stake sale.

The details will likely be decided at the FSC’s coming -- extraordinary or regular -- panel meeting next month.

The primary issue for the sale terms is whether the FSC will take stern punitive action on the buyout fund, which could be linked to Hana Financial Group’s failure in its planned takeover of KEB.

If authorities instruct the fund to dispose of shares on the stock market to anonymous investors at market-determined prices, Hana Financial could possibly fail to take over the bank.

But under the scenario that the regulator simply orders a stake sale, Lone Star may choose to hand over the dominant stake to Hana Financial in a bid to gain huge management premium. The two parties signed a preliminary deal to trade KEB shares in November 2010.

Critics such as a group of lawmakers and KEB’s unionized workers are calling for the regulator to order “dispersive” stake sale under which a number of investors purchase a part of shares, respectively, or market price-based sale on the stock market.

They argue the FSC is seeking to become a cheerleader for Hana Financial which has been striving to take over KEB for about a year.

Critics also say the FSC has neglected its obligation to properly investigate whether the U.S. fund has been eligible to control the local bank under the nation’s banking laws.

“The FSC has done nothing while the prosecution has tried to verify Lone Star’s stock rigging allegations at the court over the past few years,” a KEB banker said.

He also criticized the regulator for maintaining its ruling on March 16 that Lone Star “cannot be classified as a non-financial capital.”

While a financial investor is entitled to hold more than a 50 percent stake in a Korean bank, non-financial investors are banned from it.

Several local law firms -- in their report to authorities in April -- said they view that Lone Star has not been a financial investor but a non-financial investor.

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