LG Group’s bid for Hanaro fails

LG Group’s attempt to expand its control of Hanaro Telecom Inc. fell through yesterday in the face of opposition from its rivals in the telecommunications market, Samsung Electronics Co. and SK Telecom Co. Hanaro, the second largest high-speed Internet service provider in Korea, held an extraordinary shareholders meeting in Ilsan, northwest of Seoul, in which its shareholders rejected a new share sale plan proposed by LG Group. LG is the largest shareholder in Hanaro with a 13 percent stake. Samsung Group is the second largest, controlling about 8.5 percent through its subsidiaries such as Samsung Electronics. SK Group is the third largest with a 5.5 percent stake. LG put to vote a plan to issue 200 million new shares, which have a face value of 5,000 won ($4.20), at 2,500 won, aiming to raise 500 billion won in total for the financially distressed Hanaro. The plan earned only 62 percent support, falling short of the necessary 67 percent. Of the total 279 million floated shares of Hanaro, 72 percent, or 233 million shares, took part in the vote. LG Group and Daewoo Securities Co., the fourth largest shareholder, supported the plan, while Samsung Electronics and SK Telecom opposed it. “We opposed the plan because the price of the shares, 2,500 won, was lower than what the consortium led by American International Group proposed, 3,100 won per share,” said an official from SK Telecom. The SK official was referring to Hanaro’s effort since last year to attract foreign capital, which folded at the last minute due to opposition from LG Group. Because it is not considered financially profitable to buy Hanaro’s shares at 2,500 won at this point, industry observers believe there would be many forfeited shares if Hanaro shareholders were offered new rights. LG hopes to snap up those forfeited shares to get a grip on Hanaro, which its rivals, such as SK and Samsung, are not willing to let happen. With its new share sale plan folded, LG has met an obstacle in its long-term strategy of adding Hanaro Telecom to its other telecom units, LG TeleCom Ltd. and Dacom Corp., and growing telecommunications as its core business strength. It could also have been a way for Hanaro to raise desperately needed capital. Hanaro has to pay back a total of 390 billion won by the end of this year. The company has pooled about 200 billion won in liquidity. The firm in the first half of the year generated 11.6 billion won in operating profits. But it had to pay 71.2 billion won in interest, thus posting 67.4 billion won in net loss. At the shareholders meeting, Yoon Chang-bun, former president of the Korea Information Strategy Development Institute, was appointed the new president of Hanaro. “We will pursue attracting foreign capital again, and to address the immediate financial difficulties, we will closely discuss with financial institutions, such as our main creditor bank Korea Development Bank, pooling emergency capital of 300 billion won,” Mr. Yoon said in his inaugural address, delivered in the afternoon. LG had showed determination to push ahead with the new share issuance plan. “If the plan to issue new shares fails, I will propose to the group that we give up the telecommunications business, and I will step down as well,” Jung Hong-shik, president of LG Group’s group-wide telecommunications business, had told reporters on July 31. But when asked about whether Mr. Jung would act on his previous pledges, LG said, “It is just that Mr. Jung showed a strong will to carry out the issuance of new shares. There is still room for issuing new shares with new methods.” Instead of backing off from the telecommunications business, LG is now busy brooding over its next tactics. “We are considering drawing up another rights offering plan to put to a shareholders vote,” an official from LG said. “We do not believe that our plan to issue new shares is completely botched,” the official said. “We will take some time and draw up new measures, such as laying out new plans to issue new shares.” But the official added, “We have yet to consider anything in concrete.” LG expressed regret that Samsung and SK did not cooperate, despite its requests to do so until the morning before the shareholders meeting. “The consortium led by AIG is still willing to invest, and promised to pay at least 3,100 won per share,” said Kim Shin-bae, an executive from SK Telecom. “We will put a foreign capital attraction plan to a vote again,” Mr. Kim said. With the plan to boost capital through rights offering falling apart, related issues headed south. Hanaro Telecom plunged 4.2 percent to end at 2,750 won. Dacom fell 2.5 percent, and LG Telecom lost 1.8 percent. by Kim Hyo-jin