Kookmin to Pay for Exchange Bank Sale

Kookmin Bank (KB) agreed with Lone Star, the American investment fund, to pay for the sale of the Korea Exchange Bank (KEB) after it watches the conclusion of the investigation into KEB.

Kookmin Bank’s Chief Vice Governor Kim Ki-hong told reporters yesterday at the bank’s head office in Yeouido, Yeongdeungpo-gu, Seoul, “We agreed with Lone Star to have a new contract which states that we will pay after watching the Board of Audit and Inspection’s (BAI) and the prosecution’s investigation into KEB.”

When it comes to merger and acquisition, the deal is completed when the parties involved pay the proceeds after signing a contract and then winning approval from the financial supervisory authorities and the Fair Trade Commission. Kookmin Bank added a new condition to this: it will pay for the sale of KEB after the BAI and the prosecution finishes their investigation.

KB and Lone Star also decided to extend the preferred bidding period that ended last week till May 12.

Pushed by the Public Opinion-

Behind KB and Lone Star’s recent decision probably lies the burden on their shoulders in the face of the increasingly negative public opinion on the “fire sale” of KEB, as suspicions related to the bank’s sale are being revealed through the investigation by the BAI and the prosecution.

Though it is hoping to acquire KEB quickly, KB is at the same time concerned that it may come under criticism from the public for allegedly taking sides with Lone Star. KB, therefore, has stressed that it is in the driver’s seat in the bidding negotiations.

Vice Governor Kim of KB emphasized several times yesterday, “The important thing is that Lone Star has willingly accepted what KB has demanded with the public’s concerns in mind.”

Timing of Sale Depends on the Prosecution’s Investigation-

Now that KB has decided to delay the payment until after the end of the investigation by BAI and the prosecution, it is possible that the contract regarding the sale of KEB will only be completed late this year, depending on the progress of the investigation.

If so, Lone Star will be put in a disadvantageous position, as it will be the target of taxation at the source of income (which is generated from investment margin) starting July 1, if Belgium is designated as a tax haven under the revised bill on international taxes. The bill is expected to pass the special session of the National Assembly in April. The majority shareholder of KEB, LSF-KEB Holdings, is a corporation established by Lone Star in Belgium.

Moreover, Lone Star’s right to exercise its call option will expire in late October. In other words, the U.S. equity fund has the right to purchase shares of the Exports-Import Bank of Korea (6.9 percent) and Commerzbank (6.48 percent), and it can exercise its right only until the end of this October.

The marginal profits Lone Star is expected to gain from its call option amount to 619.9 billion won, when the 15,4000 won per share, a price offered by KB for acquisition of KEB, is the standard. If KB breaks the contract after late October, Lone Star won’t be able to take the margins.

Sang-Hoon Kim sanhkim@donga.com