London-based HSBC Holdings Plc 1is said to be in the final stages of unveiling a proposal for a 51-per cent majority stake acquisition in South Korea''s fifth-largest bank, Korea Exchange Bank (KEB) for $4.5 billion from Dallas-based US private equity fund, Lone Star.

HSBC emerged a frontrunner for the acquisition of the South Korean bank, in a deal estimated at $4.5 billion, after Singapore-based DBS Holdings pulled out of the negotiations in June, this year on account of potential legal problems, currently under investigation by S Korean authorities.

South Korean authorities have accused a top KEB executive of having conspired with a Lone Star legal representative to expand KEB''s losses to undervalue the bank and enable the PE firm to acquire it for around $900 million less than the $1.2 billion it paid.

An earlier attempt by Lone Star to divest it''s holding to Kookmin Bank S Korea''s leading bank, for $7.3 billion, is said to have been aborted by the investigators, who day they would abide by a court ruling to approve the sale of KEB.

However, Lone Star did manage to sell a 13.6-per cent stake in KEB for $1.28 billion in June through a block trade, recovering its investment, and has been trying to locate a buyer for the remaining 51-per cent.

Analysts believe that if the authorities permit the remainder stake sale, HSBC, which already has operations in the country''s domestic banking sector, was most likely to win government approval, as the country is not keen to permit new entities in S Korea''s saturated banking market.

HSBC is said to have planned to fund the acquisition through debt, which raises the possibility of the transaction being delayed due toe the fallout of US subprime mortgage market on global lenders

HSBC''s main rivals Citigroup and Standard Chartered have already beaten the London-based bank by acquiring local S Korean banks that HSBC was said to have been interested in.