Lone Star starts selling in South Korea

Lone Star Funds, the US private equity firm that is currently the subject of a government investigation in South Korea, has revealed plans to sell two of its other investments in the country.

Lone Star said it had appointed ABN AMRO to handle the sale of two of its South Korean portfolio companies: StarLease, a car rental group it has owned since 2002, and building firm Kukdong Engineering & Construction, which it bought in 2003.

The move, which comes amid ongoing controversy about the firm’s investment in Korea Exchange Bank, has fuelled speculation that the buyout firm is looking to exit the country altogether.

Lone Star bought a majority stake in KEB for a knock-down price in 2003. However, South Korean prosecutors have recently accused Lone Star of conspiring with KEB’s management to illegally acquire its stake at an artificially low price. The dispute has already forced Lone Star to abandon the proposed $7.3 billion (€5.4 billion) sale of its stake to Kookmin, another South Korean bank, and these latest disposals suggest that it may be losing its appetite for investment in the region.

However, Lone Star chairman John Grayken denied any ulterior motive: “As the companies have been restructured, it is now time for them to be sold to a strategic buyer. This is a very normal and usual step in the investment cycle of a private equity fund,” he said.

Lone Star has consistently denied any wrongdoing in the case of KEB, and believes the opposition is politically motivated. The buyout firm was one of several to snap up distressed assets in South Korea following the Asian financial crisis in 1997/8, but as the economy has recovered, there has been a growing backlash in the country against foreign investors.