Hana Financial Said in Talks With Lone Star to Buy Korea Exchange Holding

Hana Financial Group Inc. revived an effort to buy Lone Star Funds’ 51 percent stake in Korea Exchange Bank, challenging Australia & New Zealand Banking Group Ltd. for control of the lender.

Hana Financial, South Korea’s fourth-largest financial company, is in talks with Dallas-based Lone Star, an official at Hana said. No agreement has been reached and Hana may announce a decision on the purchase next week, the person said, declining to be identified because the discussions are private.

Hana Financial’s renewed interest may help Lone Star complete a five-year quest to sell control of the lender that’s been dogged by investigations into the circumstances of the fund’s 2003 purchase. While the talks may threaten a separate plan by ANZ Bank to buy Korea Exchange Bank, Hana has also said it is interested in Woori Financial Holdings Co., which the government plans to privatize by next year.

Buying KEB “would definitely be a better choice for Hana than purchasing Woori Finance, which is bigger than Hana and would be more difficult to control,” said Koo Kyung Hwe, a banking analyst at Hyundai Securities Co. in Seoul. “Investors seem to think the Hana-KEB combination would create a lot of synergies for both.”

Lone Star’s stake in KEB is worth 4.1 trillion won ($3.7 billion), based on today closing price.

Lone Star spokesman Ed Trissel declined to comment.

Hana’s Choice

Hana Financial will decide whether to bid for Korea Exchange Bank or Woori Finance by next week, Edaily reported today, citing Chairman Kim Seung Yu. A Hana spokesman, who declined to be named, confirmed the remarks.

Purchasing KEB may boost Hana’s assets to 300 trillion won from 200 trillion won, according to data from the companies as of Sept. 30. That is still less than Woori Finance’s 332 trillion won, KB Financial Group Inc.’s 330 trillion won and Shinhan Financial Group Co.’s 311 trillion won.

Hana Financial rose 2.7 percent to 32,950 won at the 3 p.m. close of Seoul trading after climbing as much as 5.5 percent, the biggest jump in more than three months. KEB fell 3.1 percent to 12,600 won. ANZ Bank rose 0.6 percent to A$23.22 in Sydney trading.

ANZ, Australia’s third-largest bank by market value, has been reviewing KEB’s finances to decide whether to purchase the controlling interest in the bank and today said it remains in the due-diligence process. “Exploring strategic and organic growth opportunities in Korea is a logical fit,” the Melbourne- based lender said in a regulatory filing today.

Buying the South Korean bank might be a “distraction” for ANZ as it seeks to expand in other parts of Asia, said TS Lim, an analyst at Southern Cross Equities Ltd. in Sydney.

‘Good’ Either Way

“If they get it, it’s good, if they don’t get it, it’s still good,” said Lim, who rates ANZ as a “buy.” “It means they have to now focus on east Asia and China and Hong Kong.”

The Wall Street Journal reported earlier that Lone Star has signed a preliminary agreement with Hana Financial to sell its stake in Korea Exchange Bank.

Since its 2003 purchase, Lone Star has recouped 1.87 trillion won of its total 2.15 trillion won investment in the Korean lender through a block sale and dividends after tax, according to Korea Exchange Bank’s data.

HSBC Holdings in September 2008 abandoned a $6 billion purchase of Korea Exchange Bank amid the global financial crisis. That was the second blow to Lone Star after Kookmin Bank, now part of KB Financial Group Inc., walked away from talks to buy 65 percent of Korea Exchange Bank in November 2006, after beating Hana for the right to negotiate earlier that year.

KEB this month reported third-quarter profit fell 31 percent to 290 billion won as it set aside more funds for bad loans and other costs. Hana Financial said last month that profit in the same period climbed 10 percent to 265.1 billion won, helped by wider lending margins.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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