HSBC Holdings plc and Lone Star Funds have extended an agreement on $6 billion acquisition of Korea Exchange Bank, the sixth largest bank in Korea, until 31 July 2008.

London-based HSBC proposes to acquire 51.02 per cent of Korea Exchange Bank, subject to regulatory approval. (See: Lone Star to sell 51-per cent stake in Korean Exchange Bank to HSBC for $6.3 billion)

The acquisition is being made through HSBC Asia Pacific Holdings (UK) Limited (HSBC Asia), its wholly owned  subsidiary.  On 3 September 2007, HSBC Asia had entered into a conditional agreement to acquire 51.02 per cent of the issued share capital of KEB from LSF-KEB Holdings SCA (Lone Star).

The parties have now agreed to extend the deadline for completion of this transaction from 30 April to 31 July 2008.  Both parties have also agreed that if the Korea Financial Services Commission (FSC) approves the deal during the duration of this agreement, the deadline for completing the acquisition will be extended by two months after the date of FSC approval.

The acquisition provides that either HSBC Asia or Lone Star may terminate the acquisition agreement if completion has not occurred on or before the deadline. HSBC Asia and Lone Star also reserve the right to terminate the agreement by giving notice between 1-7 July 2008, in case the FSC fails to grand approval by then.

"This is a particularly exciting time for Korea, Asia's third largest economy, especially given the government's stated desire to create a truly global market, building on its already strong economic links to China, Japan, the EU and the US. The proposed transaction is entirely in line with our stated strategy to focus on high growth economies and I continue to be of the view that it is in the best interest of all KEB stakeholders and of HSBC," Stephen Green, group chairman, HSBC Holdings plc, said.

There will be no change in the purchase price of approximately $6.01 billion - KRW3,170 billion plus $2.83 billion, amounting in total to the equivalent (at the exchange rate on Friday 25 April 2008 of $1.00 = KRW995.28) - payable in cash except for adjusting for a dividend of KRW700 per share declared and paid in respect of KEB's 2007 annual results.

Under a shareholders' agreement with Lone Star, The Export-Import Bank of Korea (KEXIM) is entitled to sell, on substantially the same terms, part or all of its 6.25 per cent shareholding in KEB to HSBC Asia.

HSBC Asia said it does not intend to make a tender offer to KEB's remaining shareholders and, following completion of the acquisition, KEB will remain a company listed on the Korea Exchange.

"HSBC has a long history in Korea and this transaction will reinforce our position both in the country and as Asia's number one international bank. HSBC intends to make a full contribution to the further development of the financial services industry in Korea and we remain optimistic that we can complete this transaction as soon as possible," Sandy Flockhart, chief executive of The Hongkong and Shanghai Banking Corporation Limited, said.

Except for the amendments referred to in this announcement, no other material changes to the acquisition agreement have been agreed between HSBC Asia and Lone Star, the two said in a release.

HSBC has had a continuous presence in Korea for over 110 years. It first entered the Korean market in 1897 in Jemulpo (Incheon), and returned in 1982 by opening a branch in Busan. Today, HSBC has 11 branches and five commercial banking centres, employing over 1,350 people. HSBC is one of the largest investors amongst foreign banks in Korea. HSBC Korea had total assets of KRW17,904 billion as of  31 December 2007.