How will Korea-Lone Star dispute end?

Gov’t could end up paying $4.67 billion in compensation

A multi-billion-dollar suit filed by U.S. private equity firm Lone Star against the Korean government is drawing to an end, drumming up interest over how it will turn out after a 10-year legal battle.

For the Korean government, losing the suit could mean having to pay $4.67 billion to Lone Star in compensation as the American company has demanded.

Lone Star has claimed it reaped less profit than expected in its sale of Korea Exchange Bank (KEB) to Hana Bank in January 2012 due to a delayed approval by the Korean government. The American investor accordingly filed the lawsuit in November 2012.

The compensation amount could end up being even higher due to interest accumulated over 10 years.

Additionally, the Korean defendant may be asked to bear part of the litigation expenses incurred by Lone Star if it loses the case.

“The cost of the legal dispute will be burdensome for the government regardless of the outcome,” said Song Ki-ho, a member of Lawyers for a Democratic Society, a group consisting of progressive lawyers.

His comment came as the International Centre for Settlement of Investment Disputes declared the “termination of the proceedings” of the Korea-Lone Star lawsuit, Wednesday.

Headquartered in Washington, D.C., the center is a World Bank-affiliated tribunal tasked with resolution and conciliation in investor-state dispute settlements (ISDS).

Four rounds of hearings on the case were held between 2015 and 2016, along with a question-and-answer session in October 2020.

The termination will be followed by a verdict in the next 120 days.

Lawyers for a Democratic Society sides with the view that Lone Star was allegedly linked to manipulating the stock value of KEB to buy a 51.02-percent stake in the lender at a below-market price in 2003, before selling it for 3.91 trillion won ($3 billion) to Hana Bank almost nine years later.

Through the KEB sale, Lone Star made 4.7 trillion won in profit including dividends. It still argued that it ended up raising a margin much smaller than what it could have gained because the Korean government repeatedly delayed approving the sale.

The U.S. investment firm tried to offload controlling its stake in KEB multiple times between 2005 and 2012, including in 2007 when the planned sale of the bank to HSBC fell through as the Financial Services Commission (FSC) postponed its approval.

Lone Star also said Seoul in particular applied pressure to lower the price during the KEB sale and that taxation related to the sale was unfair.

The Korean government insists that it treated Lone Star equally and fairly — as in the case of domestic entities — in accordance with international laws and regulations.

Against this backdrop, the Ministry of Justice said the Yoon Sukyeol administration plans to review what steps it will take after the tribunal delivers its decision.

Depending on the outcome, the Lone Star case could stir up a debate over whether the three top financial officials in the Yoon administration should be held responsible.

The three — Prime Minister Han Duck-soo, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho and Bank of Korea (BOK) Governor Rhee Chang-yong — were directly or indirectly linked to the Lone Star case earlier in their careers.