SEOUL Global lender HSBC (HSBA.L) is likely to stand firm on its $6.3 billion bid to buy Korea Exchange Bank (KEB) from U.S. private equity as a formal deadline looms, cheered by a more accommodating South Korean government.
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.
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 Europe's biggest bank (0005.HK) may lower its offer for 51 percent of KEB 004940.KS owned by Lone Star LS.UL, but analysts note a weaker won currency could offset any savings HSBC might have made.
The won KRW= is down 7 percent against the dollar since the deal was announced last September.
Neither HSBC nor Lone Star would comment on what would happen once a Thursday deadline passes. HSBC reports its earnings on Monday and may say something then, analysts said.
"The deadline is highly likely to be extended," said Bryan Song, research head of Merrill Lynch in Seoul. "Even if it is not, the deal would remain intact because the regulator has started an approval process and HSBC would remain the exclusive negotiator. It is leaning towards completion."
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 September 3 closing price.
KEB shares ended down 0.38 percent at 13,200 won on Thursday.
(Editing by Jonathan Thatcher)