CaymanNet Business Wednesday
South Korealooks to Telecoms privatization as crucial to economy
By Jong-Heon Lee,UPI Correspondent
SEOUL, South Korea, (UPI) -- South Korearecently wrapped up its subscription schedule for unloading a28 percent government stake in state-run telecom giant, KT Corp.as crucial part of a long-running plan to privatize the country'slargest telecommunications company.
But the privatization bid was posing a freshchallenge as the country's leading wireless carrier, SK TelecomCo, emerged as the single largest shareholder in the biggest fixedphone line provider of KT, raising concerns that it would be SouthKorea's new monopolistic telecom powerhouse.
The government hailed the country's biggest-everdirect equity offering, worth $3.8 billion, as "successful"because it achieved "complete sell-off" and "optimalpricing."
The government has pushed for privatizationof KT, formerly Korea Telecom, since 1987, and the telecom behemothis finally set to be reborn as a private concern in July whenthe general shareholders' meeting approves the new corporate identity.
But not a few industrial analysts expressconcerns that the ownership structure in KT could be distortedby SK's surprising acquisition of larger stake.
SK Telecom, a flagship company of the country'sthird largest SK Group, bought an additional 1.79 percent stakein the form of exchangeable bonds on Tuesday, raising its totalshareholding to 11.34 percent in KT.
The wireless carrier was allotted 3.78 percentstake of KT in the first round of bidding that ended on Saturdayand made an offer for an additional 5.77 percent in the secondround on Monday, making itself KT's largest shareholder.
The move exceeded SK's earlier announcementthat it would bid for 9.27 percent of the equity, triggering suspicionsthat the largest mobile phone service company intends to controlKT's management.
Rival LG Electronics Co., which took 0.76percent stake in shares, secured 1.52 percent, totaling its staketo 2.28 percent in KT. Daelim Industrial Co. received 1.39 percentstake. But Samsung, the country's largest conglomerate which intendedto buy more than 1 percent via two unlisted financial units, failedto secure any stake in KT.
With the acquisition, SK Telecom can wieldgreater influence in the country's telecom industry. SK Telecomstarted business in 1984 as the country's first wireless serviceprovider. In 1994, KT sold a majority stake in the wireless companyto SK Group, lowering its stake to 20 percent after the sale.
KT, which enjoys about 97 percent of the fixed-line local phonemarket, has separate wireless units KTF Co. and KT ICOM Co.
KTF is the country's second-largest wirelesscarrier and is the biggest competitor of SK Telecom, which accountsfor 51 percent of the mobile phone service market. KT ICOM, incharge of W-CDMA 3G service, is also competing with SK Telecom.
With the privatization plan for TK, thegovernment has tried to keep SK Telecom's share in the local mobilephone market below 50 percent, in an attempt to nurture a three-wayrace between SK, KT and LG.
In a bid to keep any single investor fromgrabbing management control of KT, the government had offered15 percent (10 percent in shares, 5 percent in exchangeable bonds)to "strategic" corporate investors, 4 percent (2 percentin shares, 2 percent in EBs) to institutional investors, and 3.7percent to individual investors in the form of shares and exchangeablebonds.
KT, which is already 49 percent owned byforeign fund managers, would sell 6 percent stake to its employeesand 27 percent to individual investors.
The government had expected three majorconglomerates -- Samsung, LG and SK -- to take a 5 percent stakeeach, a balanced distribution of KT shares that would lead toideal strategic partnerships, in a bid to ensure the separationof ownership and management.
The government also had planned to givea corporate investor with more than 3 percent stake a right toname their own outside board directors for KT, allowing them tovirtually participate in the company's management operation. Thegovernment intended to encourage the 9-member outside directorshipto balance seven board directors in management.
But the government bid aborted as SK Telecomventured out to apply for a 5 percent stake in shares in the firstround of bidding, which blocked Samsung and LG from securing a3 percent stake.
SK Telecom is banned from participatingin KT management by anti-monopoly regulations, but the failureof Samsung and LG in their attempt to secure an outside directorrecommendation right signals that SK Telecom's influence in thedomestic telecom industry will be greater than ever.
SK Telecom officials said the company hasno intention to take over KT, describing its move for larger sharesas a measure to ensure that the KT will remain neutral in itsoperation of the fixed-line telecom network. KT's local telephonenetwork is deemed a crucial platform for next-generation wirelessmultimedia services.
SK Telecom's managing executive directorShin Young-Chul said its massive acquisition was aimed at preventingSamsung's possible takeover of the wired carrier. But analystshave expressed worries that SK Telecom could exercise more monopolisticinfluence in both fixed-line and mobile industries with a controllingstake in KT.
Embarrassed by SK Telecom's move, the governmentsaid it was seeking measures to block SK Telecom's monopoly. "Weare considering revising regulations to keep SK Telecom from joiningKT's board of directors," an Information and CommunicationMinistry official told United Press International.
Speaking on condition of anonymity, theofficial said the government may allow LG and other corporateinvestors to name their own outside directors though their stakeis less than 3 percent. "The ministry would draw up measuresto address these problems before the July shareholders' meeting,"he said.
Cho Myong-hyun, an economic professor at Korea University, saidthe government is urged to seek measures to keep KT "neutral"in management.
Despite the new challenges, the completesell-off of stake marks government's success in its long-runningplan to fully privatize KT, analysts say. "With private ownership,KT is expected to improve profits," said Nam Il-chong, aneconomist at the Korean Development Institute.
Roh Keun-hwan of Tongyang Securities saidthe acquisition of TK shares by big conglomerates could be upwardmomentum for the economy.