A decade-long Seoul vs Lone Star dispute to draw final ruling in 120 days

[Photo by MK DB]

A decade-long legal dispute between the South Korean government and Lone Star Funds over the U.S-based private equity fund’s sale of a Korean bank is expected to come to an end in 120 days.

Korean Ministry of Justice said Wednesday that World Bank’s International Centre for Settlement of Investment Disputes (ICSID) has declared “discontinuance of proceeding” on the arbitration case between the Korean government and Lone Star Funds. With the declaration, ICSID will announce the final ruling as early as in 120 days, taking up to 180 days if special review is required.

The legal dispute began in November 2012 when Lone Star Funds made a filing with ICSID to request the Korean government to pay $4.7 billion for its losses related to its sale of a stake in Korea Exchange Bank (KEB). It claimed it suffered loss due to the Korean government’s delayed approval on the sale of its stake in KEB.

The Texas-based PEF acquired a 51.02 percent stake in KEB for 1.4 trillion won ($1.1 billion) in 2003. It signed a deal to sell the KEB stake to HSBC for 5.9 trillion won in 2007 but the deal fell through. The PEF later sold the stake to Hana Financial Group for 3.9 trillion won in 2012.

Lone Star claimed the deal with HSBC collapsed because the Korean government delayed approval. It also accused the Korean government pressured to lower the price and imposed unfair taxes on its deal with Hana Financial Group.

The Korean government denied the accusations made by Lone Star, saying authorities postponed approval as the PEF was involved in a criminal case on alleged stock price manipulation of former KEB unit. It contested price fell because the PEF was found guilty in the case and argued taxation was fair and reasonable.

The Korean government plans to take follow-up steps when arbitration decision is made, as it can file for cancellation of the ruling within 120 days upon ruling.

The case is important for the Korean government as the result will have an impact on other ICSID cases with foreign companies including Elliott Management, Mason Capital and Schindler Group.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]