Korea regulator may decline approval of Hana-KEB deal

Doubts on the merger surface as Financial Services Commission is reviewing whether Lone Star Funds is qualified to be Korea Exchange Bank's largest shareholder.

Hana Financial Group Inc. might not receive regulatory approval this month for its 4.69 trillion won ($4.34 billion) deal to take control of Korea Exchange Bank, an official at the Financial Services Commission said Monday, stoking worries that what would be the largest-ever acquisition of a stake in a South Korean bank may collapse.

The commission, which has jurisdiction over the matter, is still reviewing whether U.S.-based Lone Star Funds is qualified to be Korea Exchange Bank's largest shareholder, the official said. A ruling against Lone Star could lead to an order requiring it to sell down the stake to 10%, or below, though it isn't clear whether such a decision would jeopardize the Hana deal.

The question of whether Lone Star is qualified to hold the 51% stake springs from whether the private-equity fund and an executive manipulated the stock price of a publicly traded KEB unit in 2003, in order to drive down the unit's value before rolling it into the bank. Lone Star has denied wrongdoing and fought the case in the courts.

That court case has been a stumbling block in the U.S. fund's earlier attempts to sell KEB, which it bought in 2003.
While the commission had aimed to decide this month both whether Lone Star was qualified to hold its KEB stake, and whether Hana would be allowed to buy it, the official said Monday it isn't clear whether top decision makers at the FSC will even discuss the Lone Star question during their semimonthly meeting Wednesday. That had been seen as the most likely time for a ruling.

Another delay would be a significant setback for both Hana and Lone Star. Either party can choose to walk away from the deal if the transaction isn't completed by the end of May—a clause initially seen as immaterial by the market but now casting a major shadow over Hana. The South Korean lender's shares ended down 4.3% at 43,550 won ($40.28) Monday due to concerns about the deal.

View the full story in The Wall Street Journal.