Seoul court says KEB sale to Lone Star was 'unavoidable,' clears charges

(ATTN: UPDATES with details)
SEOUL, Nov. 24 (Yonhap) -- A district court ruled Monday the 2003 sale of Korea
Exchange Bank to U.S. equity firm Lone Star Funds was an "unavoidable" decision
amid the country's slumping economy, clearing involved officials of breach of
trust charges.

"The Korea Exchange Bank needed a large amount of capital injection at the time,"
said Judge Lee Kyoo-jin of the Seoul Central District Court. "And there was no
new major investors stepping out at that time except for Lone Star... It was
unavoidable to pursue the management-rights transfer."
Lone Star paid US$1.5 billion to take over a 51 percent stake in KEB. Korea's
fifth-largest lender was plagued by ill finances at the time in the aftermath of
the 1997-98 Asian financial crisis.
Prosecutors said the price was up to 825.2 billion won (US$550 million) lower
than its market price and accused a finance ministry director at that time, Byeon
Yang-ho, of conspiring with then the bank's chief, Lee Kang-won, to artificially
understate the lender's value.
The court dismissed the breach of trust charges against Byeon and Lee in the
long-delayed case that has held the KEB deal in limbo.
"The bank was weaker than other banks in terms of operation size," the judge
said, "Capital increase through a third party was the only choice for KEB," the
court said.
Lone Star agreed with London-based HSBC Holdings Plc in 2007 to sell its 51
percent stake in KEB, but HSBC terminated the US$6.3 billion deal in September of
this year, citing falling asset values and global financial turmoil. The deal had
been in limbo for about a year as Korea's financial watchdog withheld approval,
with the legal dispute still underway.
KEB recently set up a task force to help find a new investor. Korea's top retail
lender Kookmin Bank has expressed interest in buying KEB, in a second attempt
after Lone Star scrapped a deal with Kookmin in late 2006 amid the legal dispute.
hkim@yna.co.kr
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