HSBC Holdings PLC is negotiating with Lone Star Funds to cut the US$6 billion price it agreed to pay for control of Korea Exchange Bank (KEB) after financial stocks plunged, two people familiar with the matter said.
HSBC, Europe’s largest bank, and Lone Star “are discussing how this transaction may be taken forward,” the London-based company said in a statement yesterday. The two sources declined to be identified because talks were ongoing and didn’t say how much HSBC wants to reduce the price.
KEB shares have fallen 12 percent since HSBC announced its offer for Lone Star’s controlling stake in South Korea’s sixth-largest bank last September.
Losses and writedowns at banks and securities firms triggered by the global credit contraction have swelled to more than US$480 billion in the seven months since HSBC applied for regulatory approval for the transaction.
“It would be natural for HSBC to try to renegotiate the price given the market conditions,” said Shim Kyu-sun, an analyst at CJ Investment & Securities Co who has a “hold” rating on Korea Exchange. “As much as HSBC is determined to buy KEB, it’s also true that the current price is too high.”
KEB closed 1.2 percent lower at 12,900 won (US$12.68), the lowest since July 17, after falling as much as 3.5 percent. The bank trades 1.2 times book value, compared with 1.53 for HSBC.
HSBC on Sept. 3 offered to buy KEB for 18,045 won per share. The bank later adjusted the price to 17,725 won a share to reflect the Korean company’s dividend payment earlier this year.
South Korean regulators have withheld approval for the deal until a legal dispute concerning Lone Star’s 2003 purchase of KEB is resolved.
HSBC in April extended an initial deadline by three months to secure control of Korea Exchange Bank, which would give it more than 7.7 million customers and 345 branches in Asia’s fourth-largest economy. The second deadline expired on July 31.
HSBC hasn’t terminated the agreement, the bank said in the statement yesterday.
“We don’t lose anything by being patient to get the deal done,” HSBC’s London-based spokesman Patrick McGuinness, said in a telephone interview on Sunday.
“The stock price can go up and down, but the overall value of Korea Exchange Bank has increased over the years,” Lee Sung-sik, a spokesman at the Seoul-based bank, said in an interview, declining to comment on negotiations between HSBC and Lone Star.
Michael Breen, president of Insight Communications Consultants, which represents Lone Star in Seoul, said he had no immediate comment. Yoo Jae-hoon, a spokesman at the Financial Services Commission, wasn’t immediately available.
HSBC was to report earnings yesterday, with analysts forecasting its sharpest fall in profits since 2001.
First-half net income could drop 33 percent to US$7.34 billion from a year earlier as costs for bad US loans increased, analysts surveyed by Bloomberg said.
The company was expected to add US$9.7 billion to loan-loss reserves during the first six months of the year, after setting aside US$27.8 billion over 2006 and last year.
KEB last week said second-quarter profit fell 11 percent from a year earlier as higher funding costs crimped margins from lending.
South Korea’s Financial Services Commission said on July 25 it would begin reviewing HSBC’s application, which was first submitted in December, adding a final go-ahead would still depend on how the legal matters were resolved.
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