In the eDaily, lawyer and former lawmaker Lee Ki-moon discusses the decision facing the FSS regarding the pending sale of Korea Exchange Bank to HSBC and a possible end to the Lone Star saga. Below is a translation sent by a reader:
August 23, 2007 - The story this week that HSBC is the new front-runner in the race to buy Lone Star Funds’ controlling stake in Korea Exchange Bank presents the government with a question: should it approve the sale or not?
On one side of this debate you will hear doubts about whether KEB should be sold to a foreign bank. Surely, some people say, it should be bought by another Korean bank?
Others will ask, how can KEB be sold when the legality of the original purchase by Lone Star in 2003 is the subject of an ongoing court case?
Such questions put the Financial Supervisory Service (FSS) in a difficult position. If they approve the sale, they risk being accused by the press, by anti-foreign investor NGOs and some lawmakers of “selling the nation.” If not that, they risk being accused of defying the prosecutors – by allowing Lone Star to sell of a bank it may have bought illegally.
On the other hand, they know that the Blue House and ministries concerned about foreign investor sentiment want the Lone Star story to end. They also know that foreign institutional investors have been watching very closely as Korea has prevented Lone Star from selling KEB, first to KB last year, and then to the Singaporean bank DBS earlier this year.
For the new head of the FSS, Kim Yong-duk, it will not be that difficult to judge the qualifications of a new owner of KEB.
First, there is no legal reason why Lone Star cannot sell its share of KEB. Contrary to public perception, Lone Star is not actually on trial with regard to the original purchase. Prosecutors claim a former MOFE official and KEB’s president at the time conspired to criminally exaggerate KEB’s losses, so that Lone Star, as a non-banking institution, would qualify to buy it. If they are found guilty, they will be punished. But the deal was approved at the time and that approval will stand.
There is another ongoing case regarding alleged share price manipulation of KEB’s Card affiliate and Lone Star is accused in that. If found guilty, the worst punishment would be that Lone Star would be deemed unworthy to own the bank and required to sell it. Ironically, that is exactly what Lone Star has been trying to do for the last year.
Secondly, the FSS investigates the qualifications of major shareholders in all banks. Since the IMF (Note: Asian financial crisis), the FSS has been more generous in judging the qualifications of foreign shareholders in domestic banks which the government tried to urgently privatize. The real job of Korea’s financial authorities is to determine whether the major shareholder of a bank is financial or industrial capital.
When it comes to a controlling stake of a bank, the regulatory focus is naturally on the buyer, not the seller. Lone Star does not need any permission to sell its shares. However, the buyer must be approved.
The final decision of the FSS regarding the qualifications of a major shareholder is to ensure KEB’s financial soundness. Therefore, it seems reasonable for the FSS to approve HSBC’s acquisition of the stake of KEB from LSF.
(HT to reader)
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9 Comments
All these discussions about foreigner this, foreigner that, are really irrelevant.
Some time ago I was lambasted by someone here as racist as I commented that the average foreigner is a better Korean resident than the average Korean (just my opinion from observing behaviour).
The issue for Korea is the quality and ethics of management of companies. What is more desirable? A company in Korea run by crooks (but Korean crooks), or same company run by non Koreans who have higher standards.
The same applies to individuals. The issue should be, are foreigners making a positive contribution to Korea?
The anti foreigner line is pursued by those who fail to see the big picture.
Just a minor usage quibble… the headline should read,
Reasonable Take on the Lone Star Saga
Smoke and mirrors. The issue is, on whose behalf and to what end?
This article begs the question “If the matter is as easy as the writer suggests, then why have both KB and DBS failed to be consummated?”
Re: Sperwer #3:
From the translation of the article itself:
If they approve the sale, they risk being accused by the press, by anti-foreign investor NGOs and some lawmakers of “selling the nation.”
a.k.a. - “treason”
Many Koreans have at worst a fixed-pie way of viewing things : if a foreigner (one of “them”) makes money, that means the Korean(s) “us” had to lose money or at least lose out on making all of the money.
Many other Koreans have only a marginally better. They have a 1-sided view when it comes to trade : it’s OK for foreigners to “invest” in Korea…they just have to keep all of their investment in 우리나라. Hence, the free flow of capital only applies in one direction : in.
However, I’m hoping one day, the clear majority of Koreans will agree that a bigger pie for Korea is a bigger pie for Korea, whether the foreigner made their slice of the pie bigger in the process or not. In other words : it doesn’t matter nearly as much if your business partner profited or not as much as if you profited or not.
From what I understand, KEB very quite well under the guidance of Lone Star. Had Lone Star run the company into the ground (or at least driven down the value), defrauded the Koreans, and then pulled out, it would be completely different. However, none of that happened. KEB is much better off after Lone Star than before !
So, the complaining that Lone Star *gasp* “took more money out of Korea than it brought in !” reeks of nationalistic persecution of foreign investors.
The above article certainly beats this one done up by Chosun editorial writer Hee-young Song, with numerous falsehoods and a very childish tone:
http://news.chosun.com/site/da.....00965.html
Wedge,
You are right about that Chosun article. The writer is shamelessly trying to feed all the ridiculous fears and stereotypes that many Koreans have about foreign companies in Korea. It is disgusting, yet I think the article is a much better example of the stereotypical view Koreans have of Lone Star and similar foreign companies in Korea than the one that Robert has posted.
The Chosun writer seems to be saying, “How dare a foreign company stand up for their rights! The company should quietly take it up the butt and gratefully to the people giving it the shaft.”
Of course, the problem with this analysis is, as reasonable as it may be, such reason seems to have been largely ignored by the political forces working on the FSS. National populism appears to being gradually fanned to a determined crescendo come this December’s presidential elections.
I’m making this statement from purely circumstantial observations. But I think my hunch could be on target.
In other words, I would be very surprised if this is resolved within this calendar year — the political factor is too important to allow it to be quietly resolved, so long as it has the potential to serve as a fulcrum just prior to election day.
Does anyone remember the ruckus in the US last year over the P&O and Dubai Ports World deal?
yeah, it was a little different, eh, national security, wot, wot?