Daehan Investment Banking Corp said yesterday it would sue Peregrine Investments Holdings legal counsel Alan Mercer over his statement on Monday that Daehan had exposure of 1.3 trillion won (about HK$11.06 billion) to the near-bankrupt Kia Group. Peregrine is refusing to recognise merchant bank Daehan as a shareholder in its Seoul-based venture Dongbang Peregrine Securities. Peregrine's partner in the venture, Shin Dong Bang Corp, transferred most of its stake to Daehan's parent company, Sungwon, but Peregrine has said the transfer is invalid. Following the threat of legal action, Peregrine withdrew its statement that Kia owed Daehan 1.3 trillion won and that Daehan had negative net worth of between one trillion won and 2.5 trillion won, explaining that this was an error based on a press report. The Korean Economic Daily newspaper had reported that Daehan's Kia exposure was 692.6 billion won. Peregrine said: 'We now consider that a protracted debate with Daehan about financial ratios would be unproductive, and to avoid further misunderstanding, particularly in relation to the difference between Korean accounting practice and international financial analysis practice, we withdraw yesterday's statement on Daehan's net worth. 'This error does not change our opinion that Daehan's financial position renders it unqualified to become a shareholder in a securities company.' Clear disclosure of non-performing and bad loans is not compulsory for Korean merchant banks. Daehan's own estimate of its exposure to Kia is 80 billion won. Schroders Securities (Seoul) banking analyst Im Joon-hwan said it was generally believed Daehan could not survive without government support. 'The government should require merchant banks to disclose their financial data,' he said. Credit rating agency Moody's Investors Service said recently Korean banks compared unfavourably with banks in Thailand, Malaysia and the Philippines for disclosure of financial information. Peregrine has said it is considering legal action to resist the transfer of shares by Shin Dong Bang to Sungwon, which it claims is invalid under the terms of the 1992 joint-venture agreement. The agreement stipulated shareholders could not transfer their shares to third parties that were not acceptable to the other shareholders. Hostile takeovers were legalised in Korea in April. Peregrine's best defence of its position might be to prove its claim that it was not informed of the transfer in advance by Shin Dong Bang, analysts said. The Ministry of Finance has made no public comment. One official said if the two parties could find a compromise, the share transfer could be approved. Peregrine chairman Philip Tose was scheduled to address a conference in Seoul today, to be attended by Finance Minister Kang Kyong-shik on the case for reform of Korea's financial sector.