Pulse | 31 November 2020
Seoul rejects Lone Star’s out-of-court ISD settlement offer
By Yoon Won-sup, Chung Hee-young and Choi Mira
The South Korean government has opted for an international arbitration over its longstanding dispute with Lone Star Funds after it turned down the U.S. fund’s final $870-million out-of-court settlement proposal.
The Ministry of Justice said on Monday that it had received a letter on Nov. 3 from someone claiming to represent Lone Star Funds, saying the Dallas-based fund would drop the case it filed with the International Center for Settlement of Investment Disputes (ICSID), the arbitration body of the World Bank, against the Korean government over the sale of now-defunct Korea Exchange Bank (KEB), if the Korean government agreed to pay $870 million.
But the justice ministry rejected the offer as it is hard to confirm the letter is officially written and sent by the U.S. fund because it has no warrant, the ministry said. Although it has a signature of Michael Thompson, general counsel of the fund that has been leading the dispute with the Korean government, it still lacks validity of being recognized as an official offer by the fund, it elaborate.
The justice ministry plans to do all it can to win the case.
The ISDS tribunal held a video hearing on Oct. 14-15 with Lone Star and the Korean government on the case. It is expected to grant its final ruling next year after holding video hearings two or three times more.
The dispute goes all the way back to 2003 when Lone Star acquired a controlling 51.02 percent stake in financially troubled KEB for 1.38 trillion won ($1.2 billion). But the sale of the bank to the fund was later embroiled in controversy after critics raised an issue about the undervalued sale price of KEB.
After Lone Star Funds finally managed to sell its stake in KEB to Hana Financial Group in 2012, it filed a $4.7 billion investor-state dispute against the Korean government, accusing it of intentionally delaying the sale approval of KEB and causing excessive losses to the seller.