Gov't seeks cancellation of tribunal's Lone Star Funds ruling

The Korean government is seeking the cancellation of an international arbitration institution's decision ordering Korea to pay $216.5 million plus interest to Lone Star Funds as compensation for the selloff of Korea Exchange Bank (KEB).

[YONHAP]

The Korean government is seeking the cancellation of an international arbitration institution's decision ordering Korea to pay $216.5 million plus interest to U.S. private equity firm Lone Star Funds as compensation for the selloff of the now-defunct Korea Exchange Bank (KEB).

The Ministry of Justice said on Friday it filed an appeal to the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) to cancel its August 2022 ruling on the decade-long dispute with the equity fund.

The government cited five reasons, including the ICSID’s overstepping of the tribunal’s authority, procedural violation and the absence of reasoning in the ruling, for its appeal.

The ministry “has thoroughly reviewed the details of the ruling with experts following the ICSID’s decision on Aug. 31,” the ministry said in a statement. “We have confirmed there were various legal issues surrounding the ICSID’s ruling on Lone Star that could be causes for cancellation.”

The ministry said the ruling was made without providing specific details about the illegal acts conducted by the Korean financial authorities, as required by international law when acknowledging state responsibility.

“We have filed the cancellation as the public’s taxes should not be wasted due to a ruling that has legal errors,” the ministry added in the statement.

If the request is accepted, the government will no longer be responsible for paying the compensation and the accompanying interest.

Lone Star appealed the ICSID’s arbitration decision in late July, claiming that the compensation awarded was not sufficient.

In 2012, the Dallas-based Lone Star sought $4.68 billion in compensation against the Korean government for lost profit and taxes. It claimed the Korean government delayed and impeded its efforts to sell KEB, once Korea’s fifth-largest bank.

HSBC was among those that showed interest in purchasing the bank with an offer close to 6 trillion won ($4.55 billion).

Lone Star sold KEB to Hana Financial Group for around 3.9 trillion won in 2012 after acquiring a controlling stake in the bank for 1.38 trillion won in 2003 when the bank was in poor financial shape.

Lone Star said it had been pressured by the Korean government to lower the selling price for Hana.

BY LEE HO-JEONG, JIN MIN-JI [jin.minji@joongang.co.kr]