Particularly Generous to Lone Star?

Those posing them are claiming that Korean financial authorities loosened regulations and interpreted relevant laws arbitrarily in favor of Lone Star, in contrast to attempts by other foreign capital to take over domestic banks. Civic organizations and politicians are demanding an explanation for such preferential treatment.

A domestic newspaper recently released a report analyzing all of the cases since 1999, when the acquisition of Korean banks by non-Korean capital began in earnest. According to this report, only Lone Star has been regarded as financial capital among all private equity funds since revision of the Banking Act in 2002.

The amended Banking Act introduced the concept of non-financial business operators, or industrial capital, to prevent any industrial capital from holding more than 10% of a domestic bank. The designation was supposed to be given to funds with industrial capital portions of at least two trillion won or 25%.

Back in 2003, it was alleged that Lone Star may be a non-financial business operator. However, the authorities gave it the green light after checking nothing more than the accounting firm confirmation and documents handed in by Lone Star.

Singapore-based sovereign fund Temasek aimed to take over Hana Bank the following year. Though it was classified in the same capital category as Lone Star, Temasek failed to obtain approval and had to limit its shareholding percentage to 10%, four-tenths of which were voting shares. Exactly the same thing happened last year, when Korean PEFs joined the tender for the privatization of Woori Finance, with the authorities never easing the two trillion won or 25% regulation.

The restriction was not applied when Citigroup took over Hanmi Bank in 2004, nor when Standard Chartered Bank acquired Cheil Bank in 2005. However, the two were bank capital, with the former submitting the FRB’s banking business authorization. Although US PEF New Bridge Capital and Carlyle Group bought Cheil and Hanmi Banks in 1999 and 2000 respectively, this occurred before the classification of non-financial business operators.

Lone Star is considered as a de facto industrial capital even in the United States. KEB has never been allowed to open a branch in the country because of Lone Star’s major share in it.

With controversy boiling up, authorities revised the Banking Act again in 2009, lifting the two trillion won limitation on bank capital. The Financial Supervisory Service claimed in its report to the National Assembly on December 26, 2011 that Citigroup acquired Hanmi Bank though with associate industrial capital exceeding two trillion won and later the law revision of 2009 granted exceptions to bank capitals, which would cause no problem in making an exception of Lone Star IV. Professor Jeon Sung-in from Hongik University commented, “It makes no sense whatsoever to compare the case with that of officially authorized Citigroup. Besides, it is a stretch to connect the amendment of 2009 with the approval given in 2003.”