South Korea Halts Lone Star Ruling Dispute

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South Korea Wins Dispute Against Lone Star, Company Expresses Disappointment

The South Korean government has successfully won a case to cancel an international investment dispute ruling between the U.S.-based private equity fund Lone Star and the government. This development led Lone Star to express its disappointment on the 19th.

On the 19th, Lone Star told this newspaper, “We are disappointed with the ad hoc committee’s decision,” adding, “Lone Star expects to resubmit the case to a new tribunal.” It further stated, “We are confident that the new tribunal will once again rule that Korea acted unlawfully and fully compensate Lone Star for the damages.”

Additionally, the company emphasized, “The cancellation committee revoked the existing ruling based on procedural grounds,” and stressed, “The fundamental fact that Korean regulatory agencies unlawfully interfered and blocked Lone Star’s years-long efforts to sell its stake in Korea Exchange Bank remains unchanged.”

Government Announces Decision on Arbitration Ruling

The government announced the previous day that the Lone Star cancellation committee at the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C., canceled the obligation to pay the principal amount of $216.5 million and interest, which the arbitral tribunal recognized on August 31, 2022. It also stated that approximately 7.3 billion Korean won in legal costs used for the cancellation proceedings can be reclaimed within 30 days.

Background of the Dispute

The dispute between Lone Star and the South Korean government dates back to 2003. In September 2003, Lone Star acquired Korea Exchange Bank for approximately 1.4 trillion won with the approval of a financial supervisory commission, now the Financial Services Commission. After conducting sales negotiations with several companies, Lone Star sold the bank to Hana Financial in 2012, earning around 4.7 trillion won.

During this process, controversy arose over whether Lone Star had the qualifications to own Korea Exchange Bank. In 2006, the Board of Audit and Inspection released an audit result stating that the bank was inappropriately sold to Lone Star, which lacked the acquisition qualifications, leading to criticism that “the government sold the bank at a bargain price.”

In response, Lone Star filed an international arbitration case with ICSID in November 2012, claiming that the South Korean government’s unlawful interference in the sale process caused damages of $4.6795 billion.

Key Points of the Case

  • Initial Acquisition: Lone Star acquired Korea Exchange Bank in 2003.
  • Sale to Hana Financial: The bank was sold in 2012, generating significant profits.
  • Controversy Over Qualifications: An audit in 2006 raised concerns about the legitimacy of the sale.
  • Arbitration Case: Lone Star filed a case with ICSID in 2012, seeking compensation for alleged government interference.

Future Steps for Lone Star

Despite the recent decision by the ad hoc committee, Lone Star remains determined to pursue its case. The company has indicated that it plans to resubmit the matter to a new tribunal, expressing confidence that the outcome will favor its position. This move highlights the ongoing legal battle between the South Korean government and the private equity firm.

The case underscores the complexities of international investment disputes and the importance of procedural compliance in such matters. As the situation develops, all eyes will be on the next steps taken by both parties.

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