Lone Star to Give 100B Won to Korea

The U.S. private equity fund Lone Star expressed its willingness to make a donation of 100 billion won to the Korean government. But the government has decided to focus on whether Lone Star should pay owed taxes regardless.

Prosecutors also made it clear that it would thoroughly investigate all the cases on charges of the alleged Lone Star takeover of Korea Exchange Bank (KEB), the tax dodging and illegal transfer of funds out of Korea, saying, ”We see the donation and investigation issues separately,”

Kwon Tae-shin, Vice Minister, Ministry of Finance and Economy, said yesterday, “The National Tax Service will investigate all cases based on the principle without considering the letters from Lone Star, saying, “(We will contribute 100 billion won to the Korean government and pay the unpaid taxes),”

Ellis Short, vice chairman of Lone Star, prior to the above statement, sent a letter to Han Duck-soo, Deputy Prime Minister and Minister of Finance and Economy by fax, saying, “We will donate 100 billion won for Korea Social Development Fund out of our marginal profits of (some 4.5 trillion won) of the sale of KEB without any conditions.”

Moreover, it declared the intention of paying dodged taxes of 140 billion won on the sale of the Star Tower in Seoul in accordance with the final decision of the National Tax Tribunal (NTT) and depositing the maximum money, 725 billion won, in a domestic bank until the government makes a decision on imposing taxes on Lone Star’s marginal profits from the sale of KEB.

The National Tax Service is reviewing a plan to levy a maximum tax closer to 1.2 trillion won on the money Lone Star gained from selling the KEB.

The letter from the Lone Star said, “We have never said that we will not pay taxes related to the sale of (KEB) stock. We will make it clear that we will pay taxes related to the sale of KEB, paying attention to public opinion in Korea,”

This seems to come as Lone Star tries to ease the public uproar over its takeover, including the argument that its acquisition should be nullified as allegations of possible irregularities surrounding the U.S. fund`s takeover of KEB are arising.

Another criticism over Lone Star is arising because of the impression that it is just focusing on easing public uproar by giving some two percent of its total profits as a donation.

This is not the first case that foreign private equity funds (PEF) have donated some of their profits.

The U.S.-based private equity investment firm Newbridge Capital gained 1.15 trillion won in total profits last year, and it donated 20 billion won of that for Korea’s Small and Medium Enterprises Development Fund.

Do-Young Kim nirvana1@donga.com