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Lone Star’s Korea Exchange Bank Stake to Be Scrutinized

South Korea’s financial regulator plans to review whether Lone Star Funds is the legitimate owner of Korea Exchange Bank (004940) at a meeting today as Hana Financial Group Inc. (086790) awaits approval to acquire it from the buyout firm.

The Financial Services Commission will discuss whether Dallas-based Lone Star should be ordered to reduce its 51 percent stake in Seoul-based Korea Exchange Bank, the regulator’s spokesman Ernst Lee said by telephone today. The agenda doesn’t include a discussion of whether to approve Hana’s takeover, Lee said.

Lone Star, the buyout fund controlled by John Grayken, has tried for more than five years to sell its holding in Korea Exchange Bank as regulators examine the circumstances surrounding its 2003 investment in the lender. Hana Chairman Kim Seung Yu agreed in November to buy the stake for 4.7 trillion won ($4.2 billion).

South Korea allows financial institutions to hold as much as 10 percent of its banks, while limiting other investors to 4 percent. The purchase of a stake exceeding those limits is subject to regulatory approval.

Lone Star’s holding in Korea Exchange Bank came into question following a probe that began in 2006 into allegations that it paid artificially low prices for the stake. The nation’s top court last year cleared the fund.

Korea Exchange Bank rose 1 percent to 8,990 won as of 11:27 a.m. in Seoul trading, while Hana Financial advanced 0.4 percent to 42,150 won. The Kospi index increased 1.2 percent.

Lone Star had to scrap an attempt to sell its Korea Exchange Bank stake to HSBC Holdings Plc in 2008 amid the regulator’s delay in ruling on the eligibility. Kookmin Bank, now part of KB Financial Group Inc. (105560), walked away from talks to buy control of Korea Exchange Bank in November 2006.

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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