HSBC Holdings has contacted Lone Star about buying Korea Exchange Bank (KEB) from the U.S. private equity fund, the U.K.'s Daily Telegraph reported on Tuesday.
Dallas-based Lone Star is looking for a strategic buyer for its remaining 51% stake in KEB, South Korea's fifth-biggest lender, after it sold a 13.6% in the bank for $1.28 billion in June. The 51% stake is worth $4.95 billion at current market prices.
Continuing legal proceedings over Lone Star's 2003 purchase of KEB, however, have delayed a deal.
Citing people close to the situation, the Daily Telegraph reported that HSBC's expression of interest was "extremely preliminary and contingent upon a resolution of ongoing criminal investigations into KEB's sale in 2003 to Lone Star." Sources said there were no live talks about a deal, the paper added.
Buying KEB would help HSBC to grow in South Korea, where Citigroup and Standard Chartered became major players through acquisitions. KEB is one of the few remaining targets for foreign investors after Citigroup bought KorAm Bank in 2004 and StanChat took over Korea First Bank in 2005, outbidding HSBC in both deals.
A HSBC spokeswoman in Hong Kong, declined to comment. A Lone Star spokeswoman in Seoul and officials at Korea Exchange Bank could not be reached immediately.
Analysts say a competitive auction for the KEB stake is likely once legal issues are resolved or regulators allow Lone Star to sell its holding.
South Korean prosecutors say a former government official colluded with a lawyer hired by Lone Star and KEB's chief executive to inflate KEB's losses, allowing Lone Star to buy it for around $900 million less than it was worth.
The legal disputes forced Lone Star to cancel a $7.3 billion deal last year to sell KEB to Kookmin Bank, South Korea's top lender. Singapore's DBS Group Holdings had held talks with Lone Star for a possible purchase but ended talks last month, hinting at legal issues.
In February, Michael Smith, then-president and chief executive of HSBC Asia, told a news conference in Seoul the U.K.-based bank would wait until the legal issues with KEB were settled, when asked about its interest in KEB.
Kookmin is expected by analysts to take another look at KEB once the legal issues are resolved, while South Korea's National Pension Service is also interested in buying a majority stake, a fund official has said.