HSBC's move into South Korea got a fillip with a recent court decision potentially clearing its way for the acquisition of Korea Exchange Bank (KEB) from American equity fund Lone Star, after an earlier ruling had undermined the deal.

However, with today's High Court judgement declaring Lone Star Funds and its South Korea chief Paul Yoo ''not guilty'' of stock price manipulation, HSBC can probably go ahead with its purchase.

Even as late as 26 May, HSBC said it was committed to its intention of acquiring Korea Exchange Bank but is not prepared to wait for too long for the deal to be through. HSBC Korea CEO Simon Cooper had then said, ''We have extended (the acquisition deadline) until July and we are hopeful that the government will take appropriate action…KEB is a good fit with HSBC, offering a valuable platform and scope for growth.'' (See: HSBC pushes for $6.3-billion Korean deal with warning to pull out)

Judge Koh Eui Young of the Seoul High Court today overturned a February ruling that sentenced Yoo to a five-year prison term for allegedly driving down the price of shares in a Korea Exchange Bank unit to buy it cheaply. The court also cleared Korea Exchange Bank.

Regulators have withheld approval of HSBC's proposed purchase of Korea Exchange Bank for $6 billion until legal disputes are resolved. The delay has fed the perception of hostility to foreign businesses in Asia's fourth-largest economy, where direct investment from abroad has fallen for the past three years.

The Financial Services Commission reaffirmed after the ruling that it will wait until all legal uncertainties were cleared to make a decision on the sale.

In a related case cited by regulators, prosecutors also allege Dallas-based Lone Star's acquisition of Korea Exchange Bank was made at an artificially low price. While no Lone Star executive is charged in the case, a ruling in favor of prosecutors may spark a dispute on whether to nullify Lone Star's purchase.

Yoo was still found guilty in today's ruling of making improper gains through sales of bad debts that Lone Star managed, and received a suspended sentence.

Dallas-based Lone Star was one of the first overseas firms to invest in South Korea following the 1997-98 Asian financial crisis when the economy suffered the worst recession since the Korean War ended in 1953. Foreign investors who have booked large gains have been criticized in local media for ''eat and flee'' strategies, fuelling public hostility to such buyers.

The fund has long battled suspicions that it was able to purchase KEB in 2003 at a bargain price after colluding with government officials to understate the bank's financial health. Lone Star denies any wrongdoing and has countered that its rehabilitation of the once financially strapped KEB has been good for South Korea's economy.

In late April, HSBC agreed to extend the deadline for the completion of its proposed acquisition of a majority stake in KEB to 31 July from 30 April.