HSBC said it might consider pulling out of a $6.3 billion deal to buy Korea Exchange Bank (KEB), a move analysts say would heap more pressure on South Korean regulators.

The comments were the second time in as many weeks that Europe's largest bank has warned that it won't wait forever for South Korean authorities to decide on the deal, which is seen as a major test of the country's openness to foreign investors.

"The comment is seen as being intended to pressure regulatory authorities," said Lee Byung-gun at Shinyoung Securities. "HSBC can't drag its feet on the deal indefinitely, which will increase uncertainties for the bank. Now, based on (Wednesday's) comment, we cannot rule out HSBC scrapping the deal."

HSBC has already added a three-month extension to an April deadline for its bid to buy a majority stake in KEB from US investment fund Lone Star.

The deal has been held up by lengthy legal wrangling over Lone Star's purchase of KEB in 2003.

"It's an acquisition we would like to complete, but it's up to regulatory approval," Sandy Flockhart, chief executive for HSBC Asia Pacific, said yesterday. "If nothing happens, we'll find ourselves in a position to pull out. The board will have to consider that."

Flockhart's comments come about two weeks after similar ones were made by the bank's head of South Korean operations.

Park Jung-hyun, an analyst at Hanwah Securities said: "If the deal indeed falls apart, Lone Start will have to find yet another buyer, which I think will likely be either Kookmin or Hana Financial Group".

On Wednesday, Kookmin again confirmed its strong interest in KEB. But KEB hopes HSBC will become its new majority shareholder, saying:

"We still firmly believe that the HSBC deal will be the best choice for the future of KEB".

Lone Star's representatives in Seoul declined to comment.

Reuters

(HK Edition 06/12/2008 page2)