HSBC Issues Update On Proposed Acquisition Of Shareholding In Korea Exchange Bank

by Mary Swire, for LawAndTax-News.com, Hong Kong

04 August 2008

HSBC and Lone Star have had further discussions this week about how the transaction to acquire a 51% shareholding in the Korea Exchange Bank (KEB) may be taken forward.

It emerged last year that Lone Star, a US-based private equity fund, had sold a 13.6% stake in KEB for 1.19 trillion won (USD1.28bn) and was looking for buyers for its remaining 51.02% stake in the bank.

Lone Star claimed that no South Korean taxes were due on the gains accruing from the sale of its stake in KEB, stating that since it was the company's Belgian subsidiary that invested in KEB, the terms of double taxation avoidance agreement between Belgium and South Korea should determine how much tax is paid on the deal; but this was disputed by the Korean tax authority.

Later on in the year, in December, HSBC stepped up to announce that it was seeking to take advantage of the changing of the political guard in South Korea to secure approval for its proposed takeover of the KEB.

However, the long-running dispute between Lone Star and the Korean tax authorities significantly stalled HSBC's plans to increase its Asian presence with a major purchase in Korea.

On 29 April 2008, HSBC Asia and Lone Star agreed to extend the deadline for completion of this transaction (the "Long-stop Date") from 30 April 2008 to 31 July 2008.

The parties also agreed that if South Korean Financial Services Commission (FSC) approval were obtained during the currency of the acquisition agreement, the Long-stop Date would automatically be re-fixed to two months after the date of the FSC approval.

The acquisition agreement provides that either HSBC Asia or Lone Star may terminate the acquisition agreement if completion has not occurred on or before the Long-stop Date.

The regulatory filing in respect of the proposed acquisition was submitted to the Korean FSC in December 2007 but, as at 1 August 2008, FSC Approval had not been granted.

Accordingly, from 31 July 2008, the existing acquisition agreement may be terminated at any time by either party up until such time as FSC Approval is granted.

As at the time of making this announcement, HSBC Asia has not terminated the acquisition agreement nor has it received a notice of termination from Lone Star.

HSBC Asia and Lone Star are discussing how this transaction may be taken forward, and the parties intend to make a further announcement "as and when appropriate."

Recommended