KEB Sold to US Lone Star

Lone Star, a U.S.-based investment fund, has bought a 51-percent stake of the Korea Exchange Bank (KEB), the nation’s sixth-largest lender, for 1.38 trillion won, securing the bank’s management rights.

As a result, three, including Korea First Bank and KorAm Bank, out of the nation’s eight commercial banks were handed over to foreign firms.

“Lone Star will buy the 5710 shares held by Commertz Bank and the Export Import Bank of Korea (EXIM) for 5400 won each and new common shares of 268.75 million for 4000 won each,” announced the two sides.

With the total amount of sales at 1.38 trillion won, Lone Star secured a 51-percent stake along with the management rights of the bank. Sales of other shares will be restricted for the next two years since the Texas-based investment fund will remain a ‘strategic investor’ of the bank.

An indemnification clause was adopted, although the controversial ‘put-back option,’ in which the bank will have to compensate for any additional bad loans found after the deal was struck, was not included in the contract.

Lone Star is expected to pay all the money in cash to KEB by the end of next month.

KEB is scheduled to convene a shareholders meeting on Sept. 16 to vote on the issue of new shares and management reshuffle.

Lone Star will appoint 7 out of 10 in- and outside directors while existing large shareholders, Commertz, the EXIM, and the Bank of Korea (BOK), will nominate 3 other directors.

Accordingly, Lone Star holds 51 percent of KEB stakes, Commertz with 14.75 percent, EXIM with 14 percent, and the BOK with 6.18 percent.

Commertz Bank and the EXIM saw huge losses since they had bought KEB stakes for 8253 won each and 6675 won each, respectively.

Meanwhile, Standard and Poor`s, a global credit rating agency, upgraded the credit rating of KEB from BB to BB+ and rating projections from ‘Stable’ to ‘Positive’ shortly after the formal contract.

The aggressive takeovers by large foreign investment funds and banks can be attributed to the growth potential of the local banks.

“Since the restructuring of local banks in the wake of the financial crisis has almost finished, their profitability and stock prices will go up as the economy picks up,” a KEB official forecast.

Another factor is that sales fields were widened as ‘bankasurance,’ derived from ‘bank’ and ‘insurance,’ is introduced in the country.

In addition, other reasons for foreign investment funds to buy stakes of local banks can be the current laws on banks restricting the local industry to acquire bank shares within 10 percent, analysts say.

Kwu-Jin Lim 林奎振 mhjh22@donga.com bestiger@donga.com