ON THE BLOCK

Seoul/Hong Kong, Aug. 20 (Reuters): HSBC Holdings Plc has said it is in talks to buy a majority stake in Korea Exchange Bank (KEB) worth $4.8 billion from Lone Star, a move that can flush out a domestic counter-bidder.

Top South Korean bank Kookmin, whose $7.3-billion offer for KEB last year was stymied by a lengthy legal dispute, said it was still interested in KEB, raising the possibility of a bid battle for the country’s fifth-ranked lender.

And HSBC may face further domestic competition in the form of Hana Financial Group, which said earlier this month it was watching the situation at KEB with interest.

Han Jeong-tae, an analyst at Hana Daetoo Securities, said South Korean authorities could prefer a local bidder if one put in a counter-bid. “If KEB is sold to HSBC, it will mark a third major Korean bank bought by foreign players. The regulator won’t like it very much.”

The protracted legal dispute between Dallas-based private equity fund Lone Star, which holds 51 per cent of KEB, and South Korean authorities could yet cast a shadow over future deals, analysts said.

“With more than one failed attempt by foreigners to acquire KEB, we believe skepticism on deal approval remains in place,” JPMorgan banking analyst Sunil Garg said in a note on Monday.

HSBC, which has tried repeatedly to buy a bigger presence in the South Korean banking market, said it planned to maintain KEB’s name and listing status if a deal was completed.

KEB and Lone Star declined to comment on the deal.

Foreign banks keen to enter Korea may find acquisitions are the only option left, given the government’s reluctance to allow new entrants into the crowded banking sector.

Acquiring a bank is the quickest way for an outsider to get established in the competitive but lucrative market for financial services, including asset management, in Asia’s fourth-largest economy.

Citigroup and Standard Chartered became major players by buying domestic rivals, which HSBC had also attempted to buy. South Korea is Standard Chartered’s second-biggest market.

“HSBC does not have a strong physical presence in Korea now. It can expand its branch network and business in Korea by acquiring KEB,” said Wong Kwok-wai, a banking analyst at BOC International.

KEB shares closed 7.3 per cent higher at 13,950 won, outpacing the wider market’s 5.7 per cent gain.