SEOUL - U.S. private equity fund Lone Star plans to resume selling a $3.9 billion majority stake in Korea Exchange Bank, KEB said, in what would rank as South Korea's biggest banking deal to date.

Previous attempts by Lone Star to sell its 51 percent holding in the country's 6th-ranked lender -- to Kookmin Bank for $7.3 billion in 2006 and to HSBC for $6.3 billion in 2008 -- failed due to pricing and legal disputes over the private equity firm's South Korean activities.

Most of those legal issues have since been resolved in court.

The sale of the stake, currently valued at 4.4 trillion won ($3.9 billion), could trigger consolidation in the sector ahead of planned sales by the government of stakes in 3rd-ranked Woori Finance Holdings and Korea Development Bank (KDB).

(Lone Star) notified our board members today that they would resume selling the stake, a KEB spokeswoman said, adding that lead managers would be selected soon for the sale, which will be offered to domestic and foreign investors.

Lone Star has sought to exit the bank to return profits to its stakeholders. KEB shares have more than doubled since late 2008 when HSBC walked away, and the value of Lone Star's holding has more than trebled since it bought it for $1.2 billion in 2003.

Managing partner John Grayken said last month the fund expected to sell the stake in the next six months.

Domestic lenders Kookmin, part of KB Financial Group, state-owned KDB and Hana Financial Group last year expressed interest in the KEB stake, but HSBC denied talk late last year that it could return to the bidding.

Lone Star may have to sell it cheap, if they want to exit from KEB, as I don't expect a lot of foreign investors would bid because KEB is already quite expensive, said Park Jung-hyun, a Hanwha Securities analyst.

The acquisition premium will be less than 20 percent to the current price ... and, among domestic potential bidders, Kookmin has better M&A firepower than Hana, said Park, adding Hana would really have to convince its shareholders as it may need to raise capital for a KEB deal.

KEB has strength in foreign exchange trading and trade financing, and employs 7,500 staff. A buyer would be able to leverage KEB's foreign networks to head into overseas markets.

KEB trades at 1.3 times its book value, more expensive than the sector average of 0.8 times and 1.2 times for the country's top financial services group Shinhan Finance, according to Thomson Reuters data.

KEB shares earlier closed up 1.5 percent at 13,450 won, beating a flat KOSPI index . ($1=1,131 won) (Reporting by Miyoung Kim and Kim Yeon-hee; Editing by Ian Geoghegan)

South Korea HSBC Sale