Clock ticks on Hanaro debt

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Clock ticks on Hanaro debt

Hanaro Telecom Inc. missed payment on $100 million worth of bonds with warrants issued in overseas markets that matured yesterday. The second-largest high speed Internet service provider in Korea has one week before being declared in default, but it will have to pay additional interest on the bonds during that week. At the end of the grace period, the company must come up with the full interest and principal payments. To redeem the debts, Hanaro said, it had planned to issue 200 billion won ($169 million) worth of commercial paper or convertible bonds, but failed to do so because its largest shareholders, including the LG Group, Samsung Group, and SK Telecom refused to buy it. The firm has no apparent fallback plan. Doo Won-soo, a Hanaro spokesman, said, “There will be little influence on the firm’s credibility if we pay 29 million won in overdue interest every day during the grace period. We also plan to persuade our large shareholders to buy the commercial paper.” On August 19, Hanaro held a board meeting and won directors’ agreement to issue 200 billion won worth of convertible bonds to address its cash pinch. But later, the LG Group, Hanaro’s largest shareholder, vetoed the plan. On August 22, Hanaro tried again, saying it wanted to issue 200 billion won in commercial paper rather than bonds. LG balked again, and Samsung Group and SK Telecom, the next two largest investors, said they could not buy the new debt issue unless LG also went along. LG is attempting to expand its control over Hanaro, and is apparently using the Internet firm’s cash shortage to bulldoze aside opposition. In addition to the $100 million worth of bonds with warrants that matured yesterday, another 260 billion worth of debts must be redeemed by Hanaro by the end of the year. The firm needs not only one cash infusion, but a longer-term plan to get the liquidity it needs to stay in business. Hanaro controls 27 percent of the local broadband market and has 3 million subscribers. The firm also has 4 percent of the local fixed-line telephone market, 1 million subscribers, generating 120 billion won in revenue per month. But much of that income goes right back out the door as interest on its outstanding debt of 1.7 trillion won. by Choi Hyung-kyu
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