South Korea's Board of Audit and Inspection has cleared US-based buyout fund Lone Star of any wrong-doing in its acquisition of Korea Exchange Bank (KEB), blaming state regulators for errors made during the sale.
Lone Star made the purchase of KEB in 2003, although the deal is still is still in progress, with authorities investigating whether the bank was undervalued by government officials and others involved in the deal.
Under South Korean financial regulations, non-strategic investors such as Lone Star are not allowed to obtain more than a ten per cent share in any domestic lender, although an exception was made in this case by government officials due to the apparently poor financial state of the KEB.
The investigation by the country's audit agency has found, however, that this poor financial state was exaggerated by the bank, with the authorities failing to confirm that the figures were correct.
The conclusions will come as good news to industry analysts, who were concerned that a ruling against Lone Star would discourage other foreign investors from making acquisitions in South Korea.
If allowed to go ahead, the KEB deal would be the largest takeover by a foreign investor the country has so far seen.