Tuesday, January 18, 2005
S Korea probes Warburg Pincus
Song Jung-A / Seoul
South Korea’s financial regulators are investigating Warburg Pincus, the US private equity fund, over possible insider trading of LG Card shares.
The probe, following an investigation into Hermes, the UK fund manager, on charges of stock price manipulation, suggests that foreign investors are subject to heightened government scrutiny amid growing domestic discomfort with their influence in South Korea.
This unease has been exacerbated by the huge profit that Newbridge Capital, the US private equity fund, made from its recent $3.3 billion sale of Korea First Bank to Standard Chartered, the UK-based emerging market bank.
The Financial Supervisory Service said on Monday it was probing Warburg Pincus over allegations that it used undisclosed information to conduct insider trading of LG Card shares.
The FSS is also investigating other major shareholders of LG Card - including the LG Group’s controlling family members - on similar charges.
Warburg Pincus, which was once a main shareholder of LG Card with a 20 per cent stake, sold most of its stake in the country’s largest credit card issuer in October 2003 right before LG Card’s financial trouble surfaced, said an official at LG Card’s investor relations department.
At that time, Hwang Sung-jin, the head of Warburg Pincus’s Korean business, was an outside director at LG Card, which was pushed to the brink of bankruptcy, following the bursting of a consumer credit bubble.
Warburg Pincus denied any wrongdoing.
“We believe that the authorities reviewing the LG Card matter will conclude that Warburg Pincus has complied with all relevant Korean laws and regulations,” it said in a statement.
“It is true that there have been some accusations of insider trading but the investigation seems politically motivated to some extent,” said Terence Lim, the head of research at Goldman Sachs in Seoul.
“Foreign investors seem to have become the focus of financial supervision, following strong criticism of their dominance in recent mega-deals.”
Foreign investors, especially private equity funds, swept into South Korea’s corporate scene amid the restructuring that followed the 1997/98 financial crisis.
The Carlyle Group last year sold its controlling stake in KorAm Bank to Citigroup in a $2.7 billion deal.
Most recently, Newbridge made about $1 billion in capital gains from the sale of Korea First Bank.
Warburg Pincus, which has $13 billion under management, has invested a combined $350 million in Korea in LG Card, a child clothing distributor, a tent maker and an entertainment company.