Lone Star’s Korea Exchange Bank stake sale remains in limbo

Talks between Lone Star and Singapore’s DBS Group, involving the sale of the US private equity firm’s stake in Korea Exchange Bank, have ended due to still-unresolved investigations over Lone Star’s purchase of the controlling stake in 2003.

DBS Group Holdings, a Singapore-based banking group that has been building its operations across Asia, has ceased “exploratory” talks to acquire a controlling stake in Korea Exchange Bank from Lone Star as investigations over the latter’s stake purchase in 2003 continue to drag on.

“We notified Lonestar that we would not be going forward due to the uncertainties in the market surrounding the local issues that have been going on for over a year,” said a DBS spokesman. 

DBS made the statement in response to a 9 June report by Yonhap, Korea’s media agency which interviewed John Grayken, the chairman of Lone Star. He said the US private equity fund manager is trying to dispose its controlling stake in Korea Exchange Bank,, if possible, before a Seoul court rules on the legality of the 2003 acquisition.

In 2003, Lone Star bought a 50.5 percent stake in Korea Exchange Bank for approximately $1.5 billion. Last year, it entered into an agreement with Korea’s Kookmin Bank to sell an increased 64.6 percent stake in a transaction that would have netted it a profit of over $4 billion.

The US investment group has been under investigations by local prosecutors for allegedly conspiring with senior bank officials and other related parties to exaggerate the bank’s financial distress to acquire the controlling stake.

It is also under the spotlight for making tax-free gains. Lone Star has responded by pledging to make a $100 million “social contribution” to the Korean people from the sale of its stake in Korea Exchange Bank.