LONDON/SEOUL (Reuters) -- HSBC agreed to buy 51 percent of Korea Exchange Bank from private equity firm Lone Star for $6.3b, in a deal that could propel the UK-based bank into the top ranks of Asia's third-largest banking market.

If it overcomes complex legal hurdles and secures government and regulatory approval, Monday's deal will mark Lone Star's exit from a controversial purchase and allow it to more than quadruple its initial investment in KEB.
For HSBC Holdings Plc., which has tried repeatedly to buy a bigger presence in South Korea, the deal will boost its clout after peers Standard Chartered Plc and Citigroup became key players by buying local rivals.
However, the protracted legal tussle over the 2003 acquisition of KEB -- which led Lone Star to scrap a $7.3b deal with local bank Kookmin last year and prompted another buyer to end talks -- could again throw a spanner in the works.
HSBC, which first confirmed talks with Lone Star two weeks ago, said the purchase was conditional on receiving necessary approvals by April 30, 2008. The price will increase by $133m if the deal is completed after January 31, 2008.
--------------- Too keen for Korea?
The deal -- at a time when turbulence in capital markets is putting acquisition activity on ice across the financial sector -- would be the second-largest in South Korea's financial sector, after Shinhan Financial Group's $7.2b acquisition of LG Card in 2006.
HSBC has bounced back from its first-ever profit warning this year to become one of the most resilient banks amid recent jitters and the bank said on Monday it ""will and can"" pay for the $6.3b deal from its own resources.
Europe's largest bank brushed off concerns that, after missing out on big Korean deals in the past, it was overpaying for KEB. The KEB stake has a market value of $5.1b -- at least $1.2b below Monday's offer.
The acquisition price corresponds to 17,930 won per share, around 11.7 times KEB's forecast earnings based on Reuters data, above the multiple of 9 for Kookmin and the sector average. But on book value, HSBC's offer is in line with recent deals.
HSBC, which says it expects KEB to boost its earnings in the first full year of ownership, is paying 1.8 times KEB's book value, compared with 2 times for Citigroup's purchase of the former KorAm Bank in 2004 and 1.9 times for StanChart's acquisition of the Korea First Bank in 2005.
To secure KEB, HSBC could still face arduous regulatory proceedings. Local analysts said that by agreeing to buy the stake before a final ruling and without knowing how long the process will take, HSBC had shown a strong commitment to Korea which could help sway the watchdog.
South Korea's Financial Supervisory Commission reiterated on Monday that it would not approve the sale of the stake until all legal issues surrounding it had been resolved.
Prosecutors say a former government official 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 $900m less than it was worth.
The allegation is being reviewed by a Seoul district court