Lone Star Funds, whose investment in Korea Exchange Bank earned it at least $4 billion, claimed in a lawsuit that the lender alone was liable for a $49 million compensation-related payment to Olympus Capital Holdings Asia.
Five units of Lone Star are asking Singapore’s High Court to rule that the South Korean bank should compensate them for payments made to Olympus Capital, according to court papers filed in the Southeast Asian city. A closed hearing on the Dallas-based private equity firm’s request to seal the court files on the basis that they contain confidential information is scheduled for today.
An international arbitration tribunal in Singapore ordered Lone Star and Korea Exchange Bank in December to pay $37.3 million compensation and another $11.7 million in legal costs to Olympus Capital, according to the complaint. Olympus Capital, a Hong Kong-based private equity firm, had sought compensation for losses it incurred from the sale in 2003 of a stake it held in Korea Exchange Bank (004940)’s credit card unit.
“KEB should contribute 100 percent towards the liability” for the payment to Olympus Capital, Marjorie A. Harrigan, a lawyer assigned to support Lone Star’s deals in Asia, said in an April 25 court filing. The arbitration tribunal didn’t specify the split of liability between Lone Star and Korea Exchange Bank.
Lone Star declined to comment on the lawsuit.
Korea Exchange Bank will deal with the lawsuit according to legal procedures, it said in an e-mail, declining to comment further.
Lone Star and Olympus Capital in February agreed to settle all claims, subject to certain confidential terms and conditions, according to the court papers. Olympus Capital isn’t affiliated with Olympus Corp. (7733), the Japanese camera-maker, according to the Hong Kong firm’s website.
Lone Star, once the biggest foreign investor in South Korean financial assets, exited Korea Exchange Bank in February after completing a 3.9 trillion won ($3.5 billion) stake sale to Seoul-based Hana Financial Group Inc. (086790)
The US fund’s investment in Korea Exchange Bank, which it won control of in October 2003 when no local lenders were interested, has been mired in entanglements with the courts, regulators and lawmakers. Hana had originally agreed to pay 4.7 trillion won in November 2010, before negotiating two price cuts from Lone Star in the midst of the fund’s legal disputes.
Lone Star was ordered by South Korean regulators in November to sell most of its stake in Korea Exchange Bank after the firm and Paul Yoo, the former head of one of its local units, were found guilty of manipulating the share price of the lender’s credit card division to drive down its value.
Lone Star, which purchases distressed debt and assets including real estate and banks, has invested $33 billion since setting up its first fund in 1995, according to its website.
The case is Lone Star Management Co. v Korea Exchange Bank OS153/2012 in the Singapore High Court.