Hanaro`s Capital Increase Becomes a New Variable

SK Telecom, the third largest shareholder in Hanaro Telecom Inc., officially proposed yesterday that every unclaimed stock after a public offering be distributed to foreign investors, thereby attracting foreign investment, regarding the 500 billion won worth of paid-in capital increase of Hanaro Telecom.

SK Telecom announced “If the arbitration deal of paid-in capital increase along with foreign capital attraction is accepted, we will agree to the paid-in capital increase proposal, made by LG during Hanaro`s special shareholder meeting on August 5.”

Samsung Electronics, Hanaro`s second largest shareholder with 8.43% equity, is known to be reviewing SK Telecom`s proposal positively. SK Telecom possesses 5.41% of Hanaro`s total equity.

The LG Group, which is Hanaro`s biggest shareholder at 15.82% equity, has so far announced that it would acquire all the unclaimed stocks after suggesting a paid-in capital increase for 2,500 won per share. The share price at issue, proposed by LG, was lower than the previously estimated level of 3,100 won per share and accordingly provoked vehement opposition from other shareholder groups.

On the other hand, LG expressed its opposition to SK Telecom`s proposal as “unspecific and irrelevant,” adding, “We will go ahead with the paid-in capital increase and acquire unclaimed stocks as originally planed. Later on we will try to attract foreign investment.”

It was widely assumed in the telecom industry that LG would refuse SK Telecom`s proposal because LG aimed to secure managerial power of Hanaro and reorganize the telecom business centering around Hanaro.

While suggesting the arbitration deal yesterday, SK Telecom clearly showed its opposition, saying “Hanaro Telecom`s corporate value can be greatly damaged if Hanaro, after the paid-in capital increase, is consolidated into LG affiliates including Dacom, as LG aimed.”

Against this backdrop, voting will be unavoidable over the paid-in capital increase of Hanaro. Currently, shareholders who oppose LG`s deal have total equities that surpass that of the LG Group’s by over 2.3%.

In order for a paid-in capital increase proposal to be approved during a shareholder meeting, one third of the total number of stocks and two thirds of the number of stocks present are necessary. If the proposal is disapproved, Hanaro Telecom will have to pay approximately 100 million dollars (120 billion won) in overseas BW, which matures on August 22.

In an effort to persuade major shareholders, including Samsung Electronics and SK Telecom, LG earlier announced, “A withdrawal from the telecom business would be considered if the proposal on the paid-in capital increase is voted down.”

Ho-Won Choi bestiger@donga.com