Lone Star pulls out of KEB sale

The sale of KEB has been surrounded in controversy

Private equity firm Lone Star has pulled out of a $7.3bn (£3.8bn) deal to sell its 51% stake in Korea Exchange Bank (KEB) to Kookmin Bank.

Lone Star said it could not continue the sale of KEB to Kookmin Bank because of "investigations surrounding Lone Star's investment in KEB".

KEB and a unit of Lone Star have been indicted in a legal case.

It is alleged that KEB's worth was understated so that Lone Star could buy the bank for less.

Detention warrants have also been issued for two Lone Star executives.

Lone Star chairman John Grayken said the firm would consider its strategic options once South Korean prosecutors had ended their investigation into his firm's $1.2bn acquisition of the KEB stake in 2003.

"We appreciate Kookmin Bank's hard work on this transaction and regret that it could not be consummated," he said.

Kookmin officials declined to comment, while KEB spokeswoman Lee Nam-yeon said: "We don't have much to say regarding the decision of our largest shareholder."

"For Kookmin, KEB was a great opportunity to drive growth momentum and expand," said Ku Yong of Daewoo Securities.

"Now that momentum is gone, and they are going to have to find a new strategy, one that will rely on internal growth," he added.