South Korea's KEB Surges After Report on HSBC Interest

Shares in Korea Exchange Bank (KEB) soared as much as 8% on Wednesday, buoyed by a report that HSBC Holdings has contacted U.S. private equity fund Lone Star about buying the
Korean lender.

Shares in KEB, with a market value of $10 billion, have fluctuated on speculation about who would become its new majority owner, as Dallas-based Lone Star is looking for a strategic buyer for its remaining 51% stake.

Analysts said KEB, South Korea's No. 5 bank, would be the only option for any foreign bank looking to expand substantially in the country, because the government has virtually shut the door to new entrants.

The UK's Daily Telegraph said on Tuesday, when South Korean financial markets were closed for a public holiday, that HSBC's expression of interest was "extremely preliminary and
contingent upon a resolution of ongoing investigations into KEB's sale in 2003 to Lone Star."

HSBC and KEB declined to comment on the report. Talk of a possible buyer for KEB is premature, analysts said.

"There are still a number of hills they have to climb," said Daewoo Securities' banking analyst Ku Yong-uk. "Given that regulators have been reviewing Lone Star's qualifications as the top shareholder in KEB, would-be buyers will feel it would be burdensome to buy the stake from them."

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.

Other potential buyers of the KEB stake include the National Pension Fund, which manages 200 trillion won in assets. Its chief investment officer told Reuters last month that it was interested in buying a majority stake in KEB for investment purposes.

Singapore's DBS Group had held talks with Lone Star for a possible purchase but ended them last month, hinting at legal issues.