Lone Star seeks to cancel int’l tribunal order against S. Korea

July 31, 2023

U.S. private equity firm Lone Star Funds has filed an application to cancel an international tribunal’s order for South Korea to pay US$216.5 million plus interest over its sell-off of a local bank, according to the justice ministry on Monday.

In August 2022, the Washington, D.C.-based International Centre for Settlement of Investment Disputes (ICSID) delivered the verdict in the investor-state dispute settlement suit that Lone Star filed in 2012 to demand $4.68 billion in compensation from South Korea’s government. The ordered amount is about 4.6 percent of Lone Star’s demand.

In addition, Seoul was ordered to pay interest to Lone Star, which the government estimates to be around 18.5 billion won ($14.5 million).

The ICSID notified on Saturday that the Texan firm has filed for the cancellation application without providing a further reason for the claim, the ministry said.

It is largely expected for Lone Star to have judged the ordered amount to be too small.

“We plan to seek to apply for the cancellation within the deadline after fully analyzing the cancellation application (of Lone Star),” the ministry said in a press release, adding the government will explore various ways so that not a single penny of taxpayer money is wasted.

The buyout firm claimed its 2007 plan to sell a controlling stake in the now-defunct Korea Exchange Bank (KEB) to global banking giant HSBC fell through because Seoul’s financial regulatory authorities delayed approval of the deal.

Lone Star, which acquired the KEB stake for 1.38 trillion won in 2003 through a Belgian entity, had planned to sell off the stake to HSBC for about 5.94 trillion won but eventually ended up selling it to Seoul-based Hana Financial Group for some 3.9 trillion won in 2012.

Lone Star claimed South Korea deliberately delayed approval of the deal with HSBC and pressured it to lower the price in the deal with Hana Financial Group, depriving the firm of fair and equitable treatment, and other protections guaranteed in the investment treaty.

South Korea rejected the claims, arguing it treated Lone Star equally and fairly, as in the case of domestic entities, in accordance with international laws and local regulations.