July 1, 2011 / 3:48 AM / 8 years ago

UPDATE 2-Lone Star gets hefty $466 mln dividend from S.Korea KEB stake

* KEB sets 1,510 won/shr div, Lone Star earns $466 mln

* Regulators voice concern on KEB dividend amid public criticism

* Lone Star gets $1.4 bln credit line from Hana

* KEB shares end down 0.7 pct, underperform broad mkt (Recasts throughout with dividend announcement)

SEOUL, July 1 (Reuters) - U.S. buyout fund Lone Star will secure a hefty $466 million dividend payout from its controversial stake in Korea Exchange Bank (KEB), despite South Korean regulators voicing concern about the bank’s hefty dividend plan.

South Korean regulators said earlier on Friday they had requested that KEB refrain from paying out high dividends to shareholders including Lone Star.

The payout could reignite public criticism about foreign capital reaping huge profits from once-distressed Korean assets.

Lone Star had been expected to seek a big dividend payout after its takeover deal with Hana Financial Group stalled on regulatory hurdles.

The U.S. fund has agreed to sell its 51 percent stake worth some $4.3 billion in KEB to Hana Financial Group in what could be the country’s biggest banking deal.

But legal disputes have led South Korean regulators to delay approval.

After the Supreme Court overturned a lower court acquittal of Lone Star’s ex-Seoul representative charged with stock manipulation in relation to a KEB unit, regulatory authorities did not approve the deal before its May deadline.

Hana and Lone Star are in talks to extend the deal after the deadline lapsed due to regulatory delays.

KEB said in a regulatory filing late on Friday that total quarterly dividend will be 1,510 won a share. A year ago, it had paid only 100 won per share and for the whole of 2010 the dividend was only 1,085 won a share.

Lone Star put up its KEB stake as collateral to borrow $1.4 billion from Hana’s banking unit.

KEB is expected to reflect 900 billion won in gains from its stake sales of Hyundai Engineering & Construction in its second-quarter balance sheet.

CONTENTIOUS EXIT

Lone Star’s stake in KEB has been a persistent thorn, and the lessons from its foray into the Korean market have been a worry for many foreign investors.

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 publicised private-equity exit ever in Asia.

The issue of KEB’s dividend is a major theme for critics against Lone Star and its Korea exit.

Paul Yoo, the ex-Seoul representative of Lone Star who faces trials, is one of the KEB board members to determine the dividend payment, according to a recent regulatory filing.

Lone Star bought KEB for $1.2 billion in 2003 and sold down part of its stake in 2007. It had previously attempted to sell KEB to Kookmin Bank for $7.3 billion in 2006 and HSBC for $6.3 billion in 2008.

Since it acquired control of KEB, the U.S. fund has recouped more than its total 2.1 trillion won KEB investment through a block sale and dividends.

KEB shares closed down 0.7 percent on Friday, compared to the broader market’s 1.2 percent gain. ($1 = 1067.000 Korean Won) (Reporting by Lee Chang-ho and Miyoung Kim,; Additional reporting by Hyunjoo Jin and Ju-min Park; Editing by Jonathan Hopfner and Muralikumar Anantharaman)

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