Hana "speechless" as S.Korea delays Lone Star-KEB decision again

Office workers walk past a branch office of Hana Bank in Seoul November 2, 2009.

SEOUL (Reuters) - Hana Financial (086790.KS), which wants to buy Korea Exchange Bank (004940.KS) (KEB) in what could be South Korea's largest banking deal, is to review its options on Friday after financial regulators again delayed a decision on whether current majority owner Lone Star LS.UL is fit to be KEB's top shareholder.

The delay dealt a blow to the U.S. fund's attempt to exit from South Korea after years of failure and could trigger anger from investors who coughed up 1.46 trillion Korean won ($1.4 billion) for Hana Financial Group to fund the purchase of a 51 percent stake from Lone Star.

With the regulatory approval for the deal now unlikely in May, both Lone Star and Hana would be free to walk away from the deal if the transaction is not completed by May 24.

Hana Financial Chairman Kim Seung-yu told Reuters after Thursday's decision that it would hold a board meeting on Friday to decide follow-up measures.

"I was expecting to get an approval and now I'm speechless," Kim sighed.

Hana later said the company would discuss with Lone Star on extending the deal.

"Delaying a decision does not mean that the stake purchase deal is falling apart and we will seek various solutions including legal interpretation," a Hana spokesman said.

The spokesman added that the current situation would be presented to the board members at a meeting planned for Friday.

Lone Star was not immediately available for comment.

Five months after announcing the deal, Lone Star is still waiting for regulators to clear the deal and Thursday's decision has put its third attempt to get out of KEB in doubt again.

KEB's stock fell 4.4 percent on Thursday to 8,820 won prior to the financial regulator's statement.

When Hana won the auction for KEB in November, trumping Australia's ANZ Banking Group Ltd (ANZ.AX), the deal was expected to receive a quick blessing from Korean regulators so as to end the long-running sale.

But its review suffered a fresh blow in March when South Korea's Supreme Court overturned a lower court's ruling that Paul Yoo, former head of Lone Star's Korean operation, was not guilty of stock price manipulation in relation to a unit of KEB.

For regulators, the biggest concern is to minimize the public backlash associated with any decision.

If they declare Lone Star fit to be KEB's owner, it will be viewed as allowing an entity entangled in legal trouble to own a Korean bank, and that will prompt a series of litigation from other KEB shareholders, analysts say.

The Financial Services Commission said on Thursday it would review the case according to progress in a court ruling.

For Lone Star, this has been a long, hard battle. It was five years ago that Lone Star first launched the sale.

After two collapsed deals, legal actions, an office raid, dumped advisers, bad press, a financial crisis and a rapid market recovery, Lone Star is still hoping to close the most contentious and widely publicized private-equity exit ever in Asia.

Lone Star, which bought its KEB stake in 2003, recouped most of its 2.1 trillion won investment through a block sale and dividend payout.

It previously attempted to sell KEB to Kookmin Bank (105560.KS) for $7.6 billion in 2006 and HSBC (HSBA.L) for $6.3 billion in 2008.

($1 = 1076.500 Korean Won)

(Writing by Miyoung Kim; Editing by David Chance and Vinu Pilakkott)