As South Korea’s courtroom drama featuring Dallas-based Lone Star Funds’ attempts to sell its stake in Korea Exchange Bank drags on, foreign investor interest in the country is drying up, say international affairs experts in Seoul. “It’s bad enough when people at the party have been pulling out, but the Lone Star case has meant that people who might have been here have never shown up,” says James Rooney, CEO of local investment advisory firm Market Force.
Prosecutors plan to appeal to South Korea’s Supreme Court last month’s decision by an appeals court that exonerated Lone Star of any wrongdoing in its 2003 purchase of 51 percent of KEB for a bargain-basement $1.2 billion. The court also cleared Lone Star’s South Korea chief, Paul Yoo, of charges that he manipulated the KEB share price. (Prosecutors are appealing that decision as well.)
Lone Star wants to sell its KEB stake to HSBC Holdings for $6.3 billion, but the recent ruling won’t give the private equity shop the exit it’s looking for. That’s because South Korea’s Financial Services Commission won’t approve the sale of Lone Star’s stake until the court cases are cleared up, and that could take months. An FSC representative, Yoo Jae Hoon, acknowledges the case is “a litmus test” for foreign investors eyeing South Korea. Lone Star’s lawyer Jeffrey Jones believes conservative, pro-business President Lee Myung Bak will be reluctant to side with a foreign firm while fending off protests over South Korea’s decision to resume importing U.S. beef. The public outcry has “paralyzed the government from taking any decision that would be viewed as unpopular,” Jones says.
