Another installment of the Lone Star-Korea Exchange Bank Saga

It is an anarchonism to say that the financial pages make for interesting reading. On Friday [1 February 2008] a Seoul court found the American equity firm Lone Star Capital Fund guilty of stock manipulation and put in the slammer for 5 years the head of the Fund's Korea set up Paul Yoo. South Korea has turned out to be a thorn in Lone Star's backside ever since it bought up a majority interest in the Korea Exchange Bank on the heels of the Asian financial crisis ten years ago. That financial downturn offered America's venture capitalists a golden opportunity to penetrate closed door banks to foreign capital, and a chance to tap huge reserves of private capital wealth. Lone Star's majority shares then became a cause for scandal as we are going to see. They were going to HSBC Holdings for the gold ringing sum of us$6,3bn, an almost sixfold increase of the money Lone Star plonked down on the barrel head when they bought into the KEB. And what's more it was us6,3bn without paying a won of tax on the deal. How could that be you quizzically ask? Well, that happened because of a small Malaysian island called Labuan which is a tax haven for deals and agreements by which one nation absolves another nation's business of paying taxes on the sales of properties in one or the other nation. The news spread like wild fire through Korea that Lone Star was leaving with bags full of cash and without paying a cent in taxes. The government stepped in and the deal remains in limbo. [Yoo's sentencing has to do with Lone's Star's purchasing of KEB's credit card unit which it enfolded under its name. Yoo bit the bullet for Lone Star for rumour mongering which lowered the stock price to a bargain basement price so that the American venture capital firm could pick up the shares for a song. In short, Yoo goes to gaol, and the Lone Star fund's KEB pays a fine of some us$26,5m. A footnote, 18Brumaire stands corrected: through the manipulation of foreign laws, Lone Star's KEB, is a company domiciled in Belgium!]
South Korea has opened its markets to foreign ownership and capital, although you would not believe it were you to listen to the tedious tirades of venture capitalists and bankers who have dealings in Korea. They harp on a tiresome one note for the plain and obvious reason that they cannot do business the way they do in the US or are able to bamboozle their way into plums of deals as they do in poorer or less sophisticated markets. South Korea is a ripe apple...it is awash in cash which since the election of Lee Myung-bek as president will be beating a path back to Korea from the self imposed exile when Roo Myun-hoo succeeded Kim Dae Jung in the Blue House. American bankers salivate at the huge amount of won that private citizens have accumulated in South Korea. They want to manage it, and if they do, the income in any number of highly complicated tables of fees, make cash registers ring cheerfully and the sound of gold coins bring music to bankers' ears.
But the tricky financial manipulations put a black mark against Lone Star's name, and they are chomping at the bit the more especially the free cash that they had hoped to walk away with from the HSBC deal is more an illusion than reality. Well, in a way, the Lone Star has been caught in the South Korean hen house...and is paying for it, regardless the rightness of its claim!