Lone Star head decries probe into bank sale

Lone Star, which is under investigation for its alleged involvement with business irregularities in the process of purchasing Korea Exchange Bank.

U.S. fund suggests query could result in ’collapse’ of deal

Lone Star, which is under investigation for its alleged involvement with business irregularities in the process of purchasing Korea Exchange Bank (KEB), voiced strong displeasure with the prosecution’s ongoing probe.

The U.S.-based fund raised the possibility that the deal to sell its controlling stake in the nation’s fifth-largest lender could collapse, a threat apparently intended to apply pressure to the probe.

John Grayken, managing director of the fund, in an interview with Bloomberg referred to a transaction which is scheduled to close Sept. 16 but which cannot close until the investigation is concluded, referring to the deal to sell KEB to Kookmin Bank, the nation’s top lender. Grayken went on to mention the possibility of the deal’s failure.

This is the first time that the head of Lone Star mentioned the possibility that the deal worth US$7.2 billion could fail.

Market observers see Grayken’s remarks as an apparent attempt to pressure the prosecution to speed up its ongoing investigation, while demanding Kookmin Bank to make swift payment for the planned acquisition.

These interpretations are based on the perception that if the deal collapses, it is no other than Lone Star that will be in trouble. The fund would have to find a new candidate to take over its controlling stake, which would not only be time-consuming but also difficult considering the ongoing investigation. However, several possible candidates have been proposed by observers, such as Singapore’s DBS Group Holdings Ltd. and Hana Financial Group Inc.

"Lone Star was swift in trying to sell its stake in KEB and recouping its invested money as soon as the freeze period was lifted in October last year," a KEB official said on condition of anonymity. "There will be no chance for the deal to break down."

In response to Grayken’s remarks, Kookmin Bank said that it cannot make payment for the acquisition until the investigation is completed. "Talks are underway through a lead sale manager to extend the deadline," said Kim Ki-hong, the bank's chief executive vice president.

After hearing Grayken’s comments, Chae Dong-wook, a chief prosecutor in charge of the Lone Star investigation, said, "it would be impossible to complete the investigation by Sept. 16. The ongoing probe has nothing to do with the deal."

Chae added that the prosecution is conducting its investigation in a fair manner and not being swayed by outside influence, saying that it is inappropriate for anyone to talk about the ongoing probe.

Meanwhile, the prosecution has assigned more investigators to the case in order to step up its efforts.