If you haven’t heard the news, Korean financial regulators have “ordered” Lone Star to sell their remaining stake in Korea Exchange Bank to Hana Financial Group within 6 months. So, the WSJ’s Evan Ramstad in his Korea Realtime blog asks if Lone Star is ever going to make any money. Well Evan they are.
According to Evan, Lone Star has already made $3.3 billion in dividends. So, let’s analyze that briefly. Back in 2003, Lone Star originally put in a $2.5 billion investment into Korea Exchange Bank. Since 2003, Lone Star has sold small pieces of the business and taken dividends that total about $3.3 billion. Hana Bank’s current offer on the table is $3.9 billion, thus if you add what Lone Star has already made, and add Hana’s offer, then that would equal to about $7.2 billion total. Subtract the $2.5 billion invested back in 2003 and that comes out to about $4.7 billion in net returns. So what is that in investment banker talk? Assuming that Evan’s cash flow numbers are correct, an incremental ascending order of dividend payments over the past 7 years, and “J-Curve” return principles, then that would be an estimated internal rate of return (“IRR“) of about 21%. Not bad. Not great, but not bad as most U.S. private equity firms consider 20% a “good” IRR.
It could have been better. In 2007 HSBC offered Lone Star $6 billion and that may have been as estimated IRR of perhaps 35-40%, which of course, would have been a lot better. Any ways, here’s hoping this messy seven year drama in Korea’s foreign investment history be put to bed and be over with soon.