Seoul sees high odds of reversing Lone Star-favoring ruling

South Korea’s justice ministry expressed confidence in winning an appeal against an international ruling that accepted part of Lone Star’s compensation demand relating to its $3 billion sale of Korea Exchange Bank (KEB) in 2012.

The government is preparing to try to cancel the ruling issued on Wednesday by the International Centre for Settlement of Investment Disputes (ICSID) that ordered South Korea to pay around $230 million to Lone Star.

“After internal discussions, we came to the conclusion that we stand a high chance of winning,” Justice Minister Han Dong-hoon said at Parliament’s special committee on budget and accounts on Thursday.

“The compensation amounting to some 280 billion won is our taxpayers’ precious money,” he told lawmakers.

Lone Star argued that the protracted regulatory process led to a longer-than-expected exit from the Korean lender, cutting the profits by about half, or some $3 billion, it could have reaped from KEB.

The ICSID accepted Lone Star’s demand that South Korea pay compensation for reduced capital gains from KEB caused by the government’s delayed approval.

However, the arbitration body sharply cut the compensation amount to just 4.6% of what the PE firm requested.

It acknowledged South Korea’s counterclaim that it shelved its review of Lone Star's exit attempts due to a criminal case facing the private equity firm at the time.

As a former prosecutor, Han charged the PE firm with manipulating the stock price of KEB’s credit card unit, traded on the Kospi market, to take it over at a cheap price.

Lone Star acquired the credit card arm in 2004 following its 1.4-trillion-won purchase of the card issuer’s parent KEB in 2003 and merged both entities.

Related to the case, Lone Star was fined 25 billion won and its former Korean operations head Paul Yoo was sentenced to a three-year jail term in 2011.

Current South Korean President Yoon Suk-yeol and Lee Bok-hyun, head of the regulatory Financial Supervisory Service, joined the investigation as then prosecutors.

Among other high-ranking government officials, the decade-long dispute over KEB has involved Prime Minister Han Duck-soo, Finance Minister Choo Kyung-ho and Bank of Korea Governor Rhee Chang-yong.

They worked as senior regulatory officials or as an advisor of a law firm representing Lone Star in the period between 2003 and 2012, spanning Lone Star's KEB purchase to exit.

Write to Hanjong Choi and Jin-Seong Kim at onebell@hankyung.com
Yeonhee Kim edited this article.