Government to Pay 292.5 Billion Won, 4.6% of Lone Star's 6 Trillion Won Claim...De Facto Victory (Comprehensive)

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[Asia Economy Reporter Kim Hyung-min] Our government has been ordered to pay $216.5 million (approximately 292.1 billion KRW) in compensation following an Investor-State Dispute Settlement (ISDS) lawsuit with the U.S.-based private equity firm Lone Star.

The International Centre for Settlement of Investment Disputes (ICSID) arbitral tribunal handling the case ruled on the 31st, partially accepting Lone Star's claims and ordering our government to compensate Lone Star $216.5 million. Additionally, interest calculated based on the one-month maturity U.S. Treasury bond yield from December 3, 2011, until full payment must also be paid. The interest amount is estimated to be about 100 billion KRW.

The compensation amount set by the arbitral tribunal is about 4.6% of the $4.6795 billion (approximately 6.286 trillion KRW) initially claimed by Lone Star when filing the lawsuit. Because of this, legal circles are evaluating that our government has effectively 'held its ground.' First, various potential adverse consequences that could have arisen if taxpayers had to pay compensation exceeding 1 trillion KRW were avoided. Prime Minister Han Deok-soo and Finance Minister Choo Kyung-ho, who were involved in Lone Star's acquisition and sale of Korea Exchange Bank, can also avoid responsibility.

The government is expected to carefully analyze the ruling today and determine its future response strategy. At 1 p.m., explanatory materials regarding follow-up measures will also be distributed. ISDS rulings allow for appeal procedures such as cancellation requests within 120 days after the verdict. Since Lone Star may file a cancellation request, our government needs to prepare for this possibility.

If neither side pursues further appeal procedures, this lawsuit, which has lasted for 10 years, will come to a close. Lone Star began negotiations to sell Korea Exchange Bank, which it acquired in 2003, in 2006. In September 2007, Lone Star attempted to sell it to Hongkong and Shanghai Banking Corporation (HSBC), but our government did not approve the sale. Lone Star then changed course and sold its 51.02% stake in Korea Exchange Bank to Hana Financial Group in 2012 for 3.9157 trillion KRW. Subsequently, Lone Star filed the ISDS lawsuit in November 2012, claiming that our government's actions delayed the sale process and lowered the sale price.

ICSID held four hearings on this lawsuit. After William Ian Binny was appointed as the new presiding arbitrator, a Q&A session was conducted via video conference in October 2020. During the hearings, Lone Star argued that our government deliberately delayed the sale process of Korea Exchange Bank, exerted undue pressure, and denied tax exemption benefits guaranteed under the Korea-Belgium Double Taxation Avoidance Agreement to maximize tax collection. Our government countered that all procedures were conducted lawfully. A month later, Lone Star proposed to withdraw the ISDS case if the government paid $870 million, but the government rejected the offer.

This content was produced with the assistance of AI translation services.