UPDATE 1-S.Korea asks HSBC for more documents for KEB deal

(Adds background, more quotes from FSC statement)

By Kim Yeon-hee

SEOUL, July 25 (Reuters) - South Korea will launch a review of HSBC's (HSBA.L: Quote, Profile, Research, Stock Buzz) $6.3 billion offer to buy control of Korea Exchange Bank (KEB), a top regulator said on Friday, raising prospects for the deal to go through.

HSBC (0005.HK: Quote, Profile, Research, Stock Buzz) agreed to buy 51 percent of KEB (004940.KS: Quote, Profile, Research, Stock Buzz), South Korea's No.6 bank, from U.S. fund Lone Star last September, which could propel the UK-based bank into the top ranks of Asia's No.3 banking market. HSBC's deadline for the deal is July 31, after it was extended by three months from late April.

"The government respects the international and civil contract signed between HSBC and Lone Star, and has decided to start a review process related to the deal," the Financial Services Commission (FSC) said in a statement.

The FSC, an arm of the government, called on HSBC to submit updated and supplementary documents to start the review process.

The move, seen likely to leave the deal intact, is a turnaround from the authorities' previous stance, which had raised doubts about South Korea's openness to investment from abroad.

The deal has been awaiting the green light since HSBC applied for approval in December, 2007 as regulators had delayed any decision on the sale until all legal uncertainties surrounding Lone Star's activities in South Korea are settled in courts. "As the July 31 deadline for HSBC-Lone Star's contract is drawing near, our judgement is that the government needs to take a clear stance on the contract," the Financial Services Commission (FSC) said in a statement.

HSBC, weighing up whether to extend its KEB deal deadline once more, has been waiting for a positive signal from the government in the run-up to its July 31 deadline.