Report: Lone Star may sell KEB stake to CalPERS

The US private equity firm continues its search for an exit from the Korean bank after reported discussions with TPG and Oaktree failed to produce a deal.

Lone Star Funds may soon begin talks with the California Public Employees’ Retirement System (CalPERS) about selling its stake in Korea Exchange Bank (KEB), after negotiations between Lone Star and TPG fell through over price disagreements, financial industry officials told the Seoul Economic Daily

Oaktree Capital Management was also reportedly approached about a potential deal for the 51 percent stake Lone Star acquired in KEB for $1.2 billion in 2003.

KEB and TPG declined to comment. Lone Star, CalPERS and Oaktree did not respond to requests for comment at press time

In November 2008, a South Korean district court cleared bank and government officials of price manipulation in the $1.2 billion sale of KEB to Lone Star in 2003. Separately in June 2008, the Seoul High Court cleared Lone Star on an allegation of stock price manipulation of KEB’s former credit card unit.

Lone Star has had two different deals fall through as a result of the lawsuits.

In September 2008, HSBC Bank terminated its agreement to acquire Lone Star’s stake for $6.3 billion due to factors such as current asset values in world financial markets and the two parties’ inability to agree on terms. The deal also encountered regulatory obstacles such as Korea’s Financial Services Commission refusing to approve the deal until Lone Star was cleared of the allegations it faced.

In January 2007, Lone Star was forced to terminate a $7.3 billion agreement to sell its stake to Korea's Kookmin Bank due to the ongoing investigations at the time.