Mumbai: HSBC, Europe''s biggest bank, will acquire a 51-per cent stake in Korea Exchange Bank (KEB) from US private equity firm Lone Star for about $6.3 billion in cash. (See: HSBC to acquire Korea Exchange Bank from US private equity firm Lone Star)

If the deal goes through, Lone Star will exit from a controversial investment in South Korea and more than quadruple its initial investment in KEB.

While the acquisition will boost HSBC''s profile in Asia''s third-largest banking market, the bank said it did not intend to make a tender offer to remaining KEB shareholders and that South Korea''s sixth-biggest bank would remain listed on the Korea Exchange.

The deal is subject to governmental and regulatory approvals, and HSBC expects the purchase price to increase by $133 million if the deal is delayed beyond January 31, 2008.

South Korean authorities have, however, said they would put on hold a review of the current deal until all legal issues surrounding KEB are resolved.

"Our stated strategy is to focus on expanding HSBC''s presence in important growth economies," HSBC chairman Stephen Green said in statement. "This prospective acquisition reflects that strategy." He said the deal would boost its earnings in the first full year of ownership.

A deal would be the second-largest acquisition in South Korea''s financial sector after Shinhan Financial Group''s $7.2 billion acquisition of LG Card in 2006 and acquisitions by Citigroup and Standard Chartered of Korean banks.

Meanwhile, a Seoul district court is reviewing an allegation that a former government official had colluded with a lawyer hired by Lone Star and KEB''s chief executive to inflate KEB''s losses, allowing Lone Star to buy it in 2003 for around $900 million less than it was worth.

The protracted legal tussle led the US investment fund to cancel a $7.3 billion agreement to sell KEB to top local bank Kookmin last November. Singapore''s DBS Group Holdings also ended talks to buy Lone Star''s stake in KEB, hinting at legal issues to explain why it walked away from KEB.