HSBC to buy 51 pct of Korean bank for $6.3 billion

HSBC (HSBA.L: Quote, Profile, Research) has agreed to buy a 51 percent stake in Korea Exchange Bank (KEB) (004940.KS: Quote, Profile, Research) from U.S. private equity firm Lone Star for about $6.3 billion in cash to boost its profile in Asia's third-largest banking market.
The deal will mark Lone Star's (LS.UL: Quote, Profile, Research) exit from a controversial investment in South Korea, if it goes through, and allow the private equity fund to more than quadruple its initial investment in KEB.
HSBC, Europe's biggest bank, said it did not intend to make a tender offer to remaining KEB shareholders and that South Korea's sixth-biggest bank would remain listed on the Korea Exchange.
It said the deal would boost its earnings in the first full year of ownership. The deal is subject to governmental and regulatory approvals, and HSBC said the purchase price would increase by $133 million if the deal was completed after January 31, 2008.
"Our stated strategy is to focus on expanding HSBC's presence in important growth economies," HSBC Chairman Stephen Green said in statement. "This prospective acquisition reflects that strategy."
A deal would be the second-largest acquisition in South Korea's financial sector after Shinhan Financial Group's (055550.KS: Quote, Profile, Research) $7.2 billion acquisition of LG Card (032710.KS: Quote, Profile, Research) in 2006 and comes after Citigroup (C.N: Quote, Profile, Research) and Standard Chartered (STAN.L: Quote, Profile, Research) bought Korean banks.
HSBC may have to brace for a long, tough battle to get its KEB purchase approved by local regulators, however.
South Korean authorities have said that they would put on hold a review of the current deal until all legal issues surrounding KEB are resolved.
Prosecutors say a former government official colluded with a lawyer hired by Lone Star and KEB's chief executive to inflate KEB's losses, allowing Lone Star to buy it in 2003 for around $900 million less than it was worth.
The allegation is being reviewed by a Seoul district court.
The head of the South Korean unit of Lone Star, Paul Yoo, has meanwhile been standing trial on suspicion he tried to lower the share price of the former credit card unit of KEB by spreading incorrect information and thus to making it cheaper to absorb the card unit.
The protracted legal tussle led the U.S. investment fund to cancel a $7.3 billion agreement to sell KEB to top local bank Kookmin (060000.KS: Quote, Profile, Research) last November.
Kookmin and KEB had no immediate comment.
Singapore's DBS Group Holdings (DBSM.SI: Quote, Profile, Research) said in June it had ended talks to buy Lone Star's stake in KEB, hinting at legal issues to explain why it walked away from KEB.