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S Korea’s SK Telecom to sell its 3.8% stake in China Unicom

By Amarendra Bhushan for CEOWORLD Magazine Updated:September 28, 2009

South Korea’s leading mobile carrier SK Telecom Co. will sell its 3.8% stake in China Unicom Ltd.to the Chinese mobile carrier.

SK Telecom said the share sale was done to improve its financial status and expand its convergence business in China and that it expects the transaction, which values the shares at HK$11.105 a piece, to be completed in mid-November. Analysts said the buyback is likely neutral to China Unicom’s share price outlook. Shares of China Unicom ended 2% lower at midday in Hong Kong, compared to a 1.7% decline in the Hang Seng Index.

In 2006, SK Telecom agreed to buy US$1 billion worth of convertible bonds in China Unicom and formed a business alliance on code division multiple access business technology to cooperate in the areas of handsets, network infrastructure and value-added services for mobile phones. In 2007, SK Telecom converted the bonds in full at HK$8.63 a share.

Analysts said SK Telecom’s stake sale came as no surprise as China Unicom has strengthened its partnership with Spain’s Telefonica SA (TEF) recently and Unicom also sold its CDMA operations to China Telecom Corp. (CHA) last October which left CDMA mobile operator SK Telecom little to contribute to the Chinese carrier.

CDMA is a mobile technology widely used in the U.S. and South Korea.

Analysts also said the stake repurchase is neutral to China Unicom though the cash deal will likely lift the carrier’s gearing ratio slightly.

BNP Paribas analyst Michele Mak said the deal is expected to raise China Unicom’s debt-to-equity ratio to 50% from 42%, but the higher gearing ratio is “still manageable.”

For the three months ended June 30, SK Telecom’s net profit rose to KRW311.6 billion from KRW298 billion a year earlier. At the end of June, SK Telecom had total assets of KRW19.5 trillion, while its total liabilities amounted to KRW8.6 trillion.

With the earnings from the sales, SK Telecom is planning to secure financial soundness and to acquire research and development capability for the sake of its competitiveness.

The company emphasized it will continue to maintain its partnership with China Unicom, adding that it plans to increase its existing business presence in China.

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