The long shadow of Hynix
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The long shadow of Hynix

The fortunes of Korea Exchange Bank, the Korean lender controlled by US private equity fund Lonestar, have been joined at the hip to those of its biggest debtor, Hynix Semiconductor, for years. Despite the successful restructuring of the company, it would appear that little has changed.

Just as the parlous financial condition of KEB because of its overexposure to Hynix created the circumstances that enabled Lonestar to acquire control of KEB in the first place, so the windfall profits that KEB stands to gain from the Hynix restructuring will affect the negotiations of the deal to sell Lonestar’s controlling interest in the bank [see table below]. KEB chairman Robert Fallon was not prepared to comment on the sale but noted that Citigroup had already been appointed to advise on the sale process, which is already under way.

Just how negotiations with interested parties will account for the Hynix windfall will be interesting to watch. The significant potential upside from a profitable monetization of KEB’s stake, yet the scope also for significant fluctuation in valuation, suggests that a structure to contain or even remove this volatility might be appropriate. Certainly, a seasoned private equity investor like Lonestar will be loth to leave much on the table for an industry buyer, which is thought to be the most likely acquirer of the stake.

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