By Song Jung-a in Seoul
http://www.ft.com/cms/s/0/bed3bb0c-b2a7-11db-99ca-0000779e2340.html
Published: February 2 2007 10:38 | Last updated: February 2 2007 10:38
Lone Star, the US private equity fund, will receive an annual dividend of Won416.7bn from Korea Exchange Bank, recouping almost a third of its initial investment in the South Korean lender that the fund has been trying to exit.
KEB, in which Lone Star has a 64.6 per cent stake, will pay Won1,000 a share to stockholders in its first payout in a decade, despite a 48 per cent drop in earnings last year. The resulting dividend yield of 7.6 per cent is the highest for an Asian bank, but still below market expectations.
Lone Star had been widely expected to seek an even higher dividend from KEB after its $7.4bn deal to sell the lender to Kookmin Bank broke down late last year amid an extensive inquiry over its 2003 purchase of the bank. The fund could have pocketed up to $4bn if the deal had been completed. One local analyst suggested a month ago that the dividend could be set at Won2,700 a share.
Seven directors, including two from Lone Star, decided on the dividend payout at a late video conference on Thursday, considering “the bank’s financial health and strong capitalisation,” KEB said.
KEB reported a net profit of Won1,006bn last year, compared with a record high profit of Won1,930bn in 2005. The bank said its profitability continued to improve, excluding one-off gains made in 2005. Its overdue loan ratio improved to 0.77 per cent from 0.93 per cent.
Analysts said Lone Star appeared to have decided on a lower-than-expected dividend, given negative public opinion against it taking profits out of the country and concerns that a higher payout might cut KEB’s value.
“The dividend level seems reasonable. They gave up short-term gains somewhat for longer-term profit,” said Kim Jin-sang at Nomura International. “Excessive dividend-taking at this stage is not good, if they want to sell the bank at a higher price.”
Lone Star will actually receive Won354.2bn as it has to pay a 15.4 per cent tax on the dividend. KEB said its capital adequacy ratio, even after the payout, will remain above 12.4 per cent, higher than the average for Korean commercial banks. The bank had not paid a cash dividend to shareholders since 1996 as it struggled with heavy losses in the wake of the 1997 financial crisis.
Lone Star is expected to resume efforts to sell KEB once the ongoing probe by Korean prosecutors over alleged misconduct surrounding its acquisition of the bank is concluded. Prosecutors indicted Paul Yoo, Lone Star’s head of Korean operations, last week for alleged stock price manipulation and tax evasion.
They are also requesting the extradition of Ellis Short, Lone Star’s vice chairman, and Michael Thomson, general counsel, for questioning over allegations that they conspired with government officials to unfairly take over KEB.
Separately, Shinhan Financial Group, the country’s second-largest lender, reported Friday that its profits last year rose 17.4 per cent to Won1,833bn on the strong performance of its banking and non-banking units. The group is set to take over LG Card, the country’s top credit card firm, this quarter.