Lone Star-S. Korea ruling seen as decent defense

Sep 01, 2022, 07:40 am

AsiaToday reporter Kim Im-soo

An international tribunal ordered South Korea to pay the U.S. private equity firm Lone Star Funds $216.5 million. This is the outcome after 10 years of dispute. Although 95.4 percent of Lone Star’s demand in compensation was rejected, the South Korean government decided to consider filing for its cancellation or suspension of implementation.

The Ministry of Justice said Wednesday that the Washington, D.C.-based International Centre for Settlement of Investment Disputes (ICSID) delivered the verdict in the investor-state dispute settlement suit. The ordered amount is about 4.6 percent of Lone Star’s demand.

In addition, South Korea was also ordered to pay interest, compounded annually at the average one-month U.S. Treasury rate, from Dec. 3, 2011, to the date of payment. The interest is estimated to be around 18.5 billion won ($13.8 million).

In November 2012, Lone Star filed an international arbitration for compensation, claiming that the South Korean government unfairly intervened in the process of selling the now-defunct Korea Exchange Bank (KEB) through the investor-state dispute settlement (ISDS), which resulted in a loss of $4.679 billion.

Previously, Lone Star bought KEB for 1.38 trillion won in 2003, and sold it back to Hana Financial Group for 3.91 trillion won in 2012 after negotiating the sale with several companies.

However, in the same year, Lone Star requested arbitration from ISDS, claiming that it suffered losses due to the South Korean government’s delayed approval of the deal with HSBC.

In May 2013, the ICSID formed an arbitral tribunal to hear the case and proceeded with the hearing process. But the decision was delayed due to several reasons, such as the resignation of the chairman arbitrator. The ICSID made the ruling nearly a decade after the onset of the case.

The arbitral tribunal ruled that only the delay in approval violated fair treatment at the time of selling the KEB to Hana Financial Group, and sided with the South Korean government for the rest of the actions. The panel also recognized only half of the amount of compensation considering that Lone Star was found guilty in relation to the case of KEB stock manipulation.

The government decided to seek cancellation of the ruling to reduce the amount of compensation to zero, given that there was a minority within the panel that the government’s responsibility was not recognized in relation to the judgment over Hana Financial Group.

“It is difficult to accept the decision by a majority opinion. We express regret,” the justice ministry said. “The government will consider filing for its cancellation or suspension of implementation, and push actively for it.”

Justice minister Han Dong-hoon also said, “Not a single penny of taxpayer money should be wasted.”

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