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Last September, U.K.-based HSBC agreed to buy the controlling stake in South Korea's fifth-largest lender from U.S. buyout firm Lone Star Funds, a deal that will help the British bank tap Asia's fourth-largest economy.
But the sale has been deadlocked as the Financial Services Commission (FSC), South Korea's financial watchdog, withheld approval of the deal, citing legal disputes over Lone Star's purchase of the Korean bank in 2003.
"We will start reviewing the deal as soon as HSBC submits updated documents for the deal to us," the watchdog said in a statement. "But our decision of whether to approve the sale deal will depend on how legal disputes surrounding the deal will be resolved."
HSBC submitted an application to the FSC in last December for its planned purchase of the Korean lender from Lone Star Funds.
Regarding the watchdog's move, a KEB official said, "We are very happy that the FSC has decided to review the qualifications of HSBC to become our major shareholder. We have high expectations for positive outcome of the review, and we continue to hope for a rapid decision and approval of the transaction."
The planned review of the deal is a turnaround from the watchdog's previous stance that it would make a decision on the deal after all legal disputes involving Lone Star's takeover of KEB are resolved.
Prosecutors are looking into allegations that former government officials and a former president of KEB colluded to "artificially" understate KEB's financial health in a bid to help Lone Star purchase the lender at a below-market price.
A verdict on the case is expected by the end of September at the earliest.
Separately, Lone Star and the former head of its South Korean office were cleared of charges June this year for manipulating the stock price of KEB's credit card affiliate in 2003 to buy the affiliate below market cost.
Meanwhile, HSBC and Lone Star, which had already extended an earlier deadline for the deal by three months, are poised to further extend the deadline beyond the end of July, possibly by two months, according to financial sources
The Times of Britain reported on Wednesday that HSBC is now "highly likely" to extend the deadline for the deal, citing sources close to HSBC.
Previously, HSBC has indicated it may abandon the deal unless South Korean regulators approve it soon.
Earlier this week, KEB's labor union said HSBC has agreed to retain the bank's employees, a gesture that it says proves Europe's largest bank is unlikely to scrap its purchase of the South Korean lender.
Shares of Korea Exchange Bank closed at 13,350 won on the Seoul bourse, down 2.91 percent.
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