South Korea\'s financial regulator ordered Lone Star Funds Friday to sell the bulk of its stake in Korea Exchange Bank (KEB) within six months, paving the way for the U.S. private buyout fund\'s exit from the local market. The Financial Services Commission (FSC) said that it has decided to require Lone Star Funds to reduce its 51.02 percent stake in KEB, the country\'s fifth-largest lender, to below 10 percent by May 18. In 2003, Lone Star bought a 51 percent stake in then-fragile KEB and 14.1 percent more from Germany\'s Commerzbank and the state-run Export-Import Bank of Korea in 2006 for a combined 2.15 trillion won (US$1.89 billion) before offloading the remainder via block sales later. \"The six-month period was decided after considering previous cases as well as the number of shares that have to be sold,\" FSC Standing Commissioner Lee Suk-joon said in a briefing. The 41.02 percent stake that is subject to sale is equivalent to 265 million shares. The order comes after the FSC ruled the Texas-based buyout fund was an illegitimate major shareholder of the country\'s fifth-largest lender following an Oct. 6 verdict that found Lone Star guilty of stock manipulation related to its merger with KEB\'s card unit in 2003. Under local banking law, a corporate entity that has violated related rules over the last five years is banned from owning more than a 10-percent stake in a bank. The decision is expected to expedite a 4.41 trillion won deal to sell the KEB stake to No. 4 banking group Hana Financial Inc., following botched talks with Kookmin Bank in 2006 and HSBC Holdings Plc in 2008. In November 2010, Hana Financial agreed to purchase KEB from Lone Star, but the deal has been pending due to regulatory hurdles, leading Hana Group and the buyout fund to extend the agreement to Nov. 30. Hana Financial is determined to close the deal. The group\'s chief Kim Seung-yu recently told reporters that the banking group and Lone Star are \"in same boat\" and a timely completion of the deal would suit both firms. Kim, however, had said Hana Financial has not held talks with Lone Star on the price, adding no such meeting will take place ahead of the FSC\'s sale order. The FSC, meanwhile, said it has decided to request Hana Financial submit a new application for a permit on acquiring KEB, citing changes in circumstances. If Hana Financial and Lone Star renegotiate on their deal, the results of the deal will also be considered for the permit as they may affect evaluation factors, such as Hana Financial\'s asset quality, according to the FSC. The regulator said it also plans to push for the resignation of three Lone Star officials on the KEB board, including the buyout fund\'s former Korean unit head Yoo Hoe-won. The sale order, meanwhile, is expected to spur strong backlash from civil activists as well as politicians, who have been demanding tougher punishment. \"KEB\'s labor union cannot accept the decision since it\'s an illegitimate move, granting a privilege (to Lone Star). We plan to ask for legal responsibility and review all countermeasures, including a general strike,\" a KEB labor union official said by phone. The bank\'s unionized workers and top politicians, including ruling party chief Hong Joon-pyo and main opposition party leader Sohn Hak-kyu, have been calling for the FSC to first re-evaluate whether Lone Star is a financial or non-financial investor based on the size of the buyout firm\'s non-financial assets. They said that under local banking law, Lone Star should be classified as a non-financial investor, which would nullify the buyout firm\'s agreement with Hana Financial and strip it of its shares that exceed a 4 percent stake. They also demanded the regulator take punitive action against Lone Star\'s stake sale, such as ordering a public sale, a move which would block the U.S. buyout fund from pocketing more than twice the money it spent on purchasing KEB. Some, however, had also raised concerns a public sale would make KEB\'s share price plummet and lead to investment losses for minority shareholders. Since entering South Korea, Lone Star has undergone years of unceasing outcry and legal battles over its allegedly shady stock purchase and tax payment as well as public hostility toward foreign funds chasing local firms for speculation. Shares of Hana Financial closed at 35,600 won on the main Seoul bourse, down 0.97 percent from the previous close, while KEB shares slumped 1.74 percent to 7,900 won.