KEB Deadline Passes, HSBC to Disclose Plans Later
Europe's biggest bank HSBC Holdings said it did not receive regulatory approval to buy a majority stake in Korea Exchange Bank by a deadline on Thursday, but is expected to stand firm on the $6.3 billion deal.
The long-running deal, mired in outstanding legal issues, is seen as a test of whether South Korea is genuine in its pledge to open its financial sector wider to international investors.
HSBC had agreed to buy a 51 percent stake in KEB from U.S. private equity firm Lone Star, but either it or Lone Star can terminate the deal after not getting regulatory clearance by a July 31 deadline.
HSBC said on Thursday it would make a further statement on its plans "when appropriate".
As the deadline loomed without sign of a deal, HSBC had been expected to push ahead with completing the deal at a later date, encouraged by a more accommodating South Korean government.
HSBC said in a brief statement: "We believe in the long term prospects for Korea, we have a good business there already, and wish to play a major part in the country's further development." It declined to comment further.
A successful deal would be the biggest cross-border move in South Korea's banking sector and catapult HSBC into the ranks of the country's top local banks.
Recent sharp stock market losses have prompted speculation that HSBC may lower its offer for the stake, but analysts said a weaker won currency could offset any savings HSBC might have made.
The won is down 7 percent against the dollar since the deal was announced last September.
HSBC reports its earnings on Monday and may say something then, analysts said.
A foreign bank official in Seoul said Lone Star has been preparing to repatriate the proceeds from the KEB sale, suggesting it thinks it is close to completing with HSBC.
HSBC has already extended the deadline once, from April 30, as it awaited necessary approvals from South Korean regulators.
The deal to buy control of South Korea's No.6 bank had looked deadlocked until last week when the Financial Services Commission (FSC) changed tack and said it was starting an approval process -- taken as a sign the government wanted to proceed.
But there could yet be delays.
A public backlash against a deal to import U.S. beef has seen President Lee Myung-bak's popularity plunge after just five months in office and could slow the sweeping reforms he promised to make South Korea more open to foreign investment.
Analysts say things could become clearer in September or October when a lower court is likely to hand down its verdict on whether Lone Star's $1.2 billion KEB purchase in 2003 was illegally made at below-market prices.
Lone Star is not directly involved in the case, but a senior FSC official said last week that legal uncertainties surrounding Lone Star would be cleared once the verdict is made.
The FSC said it had asked HSBC to submit updated and supplementary documents to start the review process. South Korean newspapers interpreted that as a move to prolong the process time until the lower court ruling.
HSBC's offer price corresponded to 18,045 won or $19.2 per share, according to HSBC's conversion rate -- a 23 percent-plus premium to KEB's Sept. 3 closing price.