The Korean government won the lawsuit against the U.S. private equity fund Lone Star over the sale of Korea Exchange Bank. As a result, there is no compensation the Korean government must pay to Lone Star. Lone Star must pay 7.3 billion won in litigation expense that the Korean government made as expenditure.
Kim Min-seok, the prime minister, said at a briefing at Government Complex Seoul at 7 p.m. on the 18th that "the government received a ruling of victory for the Republic of Korea this afternoon at 3:22 p.m. (1:22 a.m. Eastern Time) from the Lone Star ISDS annulment committee of the International Centre for Settlement of Investment Disputes (ICSID) in Washington, D.C."
He added, "The annulment committee canceled all obligations to pay 'the principal compensation of $216.5 million to Lone Star by the government and interest thereon' recognized in the arbitration award dated Aug. 31, 2022," and said, "The government's compensation liability of about 400 billion won (based on the current exchange rate) recognized in the original award has been retroactively extinguished in full."
In addition, the Korean government won a clawback decision ordering Lone Star to pay within 30 days approximately 7.3 billion won in litigation expense that the Korean government has made as expenditure during the annulment process.
◇ Prime Minister Kim: "National fortune is heading in a good direction"; Jung Sung-ho: "Justice Ministry staff put in their utmost effort"
The prime minister called the government's victory "a significant achievement that protected the national finances and taxpayers' money," and said it "recognized the Republic of Korea's sovereignty over financial supervision." He added, "Since the launch of the new administration, following the successful hosting of the Asia-Pacific Economic Cooperation (APEC) summit, summit diplomacy with the United States, China, and Japan, and the conclusion of tariff negotiations, this is a feat achieved in the external institutional sector," and said, "The national fortune is going in a good direction."
Justice Minister Jung Sung-ho said, "Some may say this was already underway before the launch of the new administration, but this is not a matter of any particular administration," and added, "On Dec. 3 last year, in a situation where, after the insurrection, there was no president and no justice minister, the director-general for international legal affairs at the Justice Ministry and the staff put in their utmost effort."
The government has not been able to analyze in detail the decision stating that the Korean government won. Jeong Hong-sik, director-general for international legal affairs at the Justice Ministry, said, "The decision exceeds 120 pages. We received it just three hours ago," and added, "We will provide a detailed press release and media briefing later."
◇ Lone Star failed in attempt to sell Korea Exchange Bank to HSBC… bought for 1.4 trillion won, sold for 3.9 trillion won
Korea Exchange Bank was a state-run bank established in 1967 with an equity investment from the Bank of Korea. In line with the government policy to foster a bank specializing in foreign exchange, it was launched by separating from the Foreign Exchange Management Department of the Bank of Korea.
Korea Exchange Bank became insolvent during the 1997 International Monetary Fund (IMF) foreign exchange crisis. In 1999, the largest shareholder changed from the Bank of Korea to the German bank Commerzbank AG, and in 2003 Lone Star bought it for 1.3834 trillion won. Lone Star later attempted to sell Korea Exchange Bank to the British Hongkong and Shanghai Banking Corporation (HSBC) but failed. After that, in 2012 it sold the bank to Hana Financial Group for 3.9157 trillion won. Korea Exchange Bank merged with Hana Bank in 2015 to become KEB Hana Bank.
Lone Star filed an investor-state dispute settlement (ISDS) claim, saying the Korean government unfairly intervened in the process of selling Korea Exchange Bank and caused $4.6795 billion (about 6.1 trillion won) in losses. It argued that government intervention during the sale caused it to lose the opportunity to sell at a higher price.
The International Centre for Settlement of Investment Disputes (ICSID) on Aug. 31, 2022, ruled that the Korean government must pay $216.5 million, equivalent to 4.6% of the damages claimed by Lone Star.
In October of the same year, the government filed a request for rectification, saying the arbitral tribunal had overestimated the principal compensation and that interest had been double-counted. The tribunal accepted this, reducing the compensation to $216,018,682.
Lone Star filed for annulment in July 2023, saying the compensation amount was insufficient. The Korean government also filed for annulment in September of the same year, saying there was room to contest the legal issues. The related briefing was given by Han Dong-hoon, then leader of the People Power Party, who had been the justice minister.