Hanaro signs; LG squawks

Hanaro Telecom Inc. signed an agreement with a consortium led by American International Group Inc. and Newbridge Capital LLC for a $500-million equity investment in the second biggest broadband service firm in Korea. This was the first shot in a new round of conflict between LG Group and other major shareholders in Hanaro. The deal, if closed, would be followed by another transaction of $600 million for a five-year syndicated loan from foreign and domestic banks including JP Morgan & Co., Development Bank of Singapore and ABN AMRO Bank. The signing of the loan agreement is scheduled for next month. Hanaro shed 1.3 percent in yesterday’s stock trading, closing at 3,880 won ($3.30). LG Group, the biggest shareholder in Hanaro at 18 percent, has opposed the deal, and it is uncertain as to whether it will try to block approval of the investment at a shareholder’s meeting scheduled for Oct. 21. The agreement with the investors calls for a $2.5-million penalty from Hanaro if the pact is vetoed by shareholders. The agreement is the broadband company’s latest attempt to save itself from insolvency. It has a severe cash crunch even though its debt-equity ratio is a modest ― by Korean standards ― 1.56:1. The total of $1.1 billion of new funds from abroad could give a boost to the Roh administration, which is battling an image of a pro-labor, investor-unfriendly group. The AIG-Newbridge consortium has agreed to buy 182 million new shares of common stock from Hanaro at 3,200 won per share. That would boost Hanaro’s paid-in-capital to 2.3 trillion won. If the deal is endorsed at the shareholder meeting, the consortium would own about 40 percent of Hanaro; LG Group’s stake would be diluted to 9.6 percent. LG wants things to go in the opposite direction. Seeking to take over management control of the Internet service firm, it has shot down a series of proposed rescue plans for Hanaro, but other large shareholders have countered its takeover efforts as well. Earlier, Hanaro’s board members representing LG Group’s interest vetoed a similar offer in July by the same consortium. A subsequent bid by LG Group to raise 500 billion won fell apart in the face of opposition from Samsung Electronics Co. and SK Telecom Co., which own a combined 14 percent stake. “Hanaro will be pursing strategic alliances and consolidation opportunities with other companies, including Dacom Corp. and Powercomm Corp.,” Newbridge Capital said in a statement. That could be a sop to LG Group, which owns both firms. David Bonderman of Newbridge rebutted criticism that the consortium is bottom-fishing. “Our normal investment period is up to 10 to 12 years,” he said. Yoon Chang-bun, chief executive of Hanaro, said the proposed share price is reasonable. “Two or three months ago, Hanaro’s share price ranged from 2,000 won to 2,300 won. In anticipation of financial deals, the stock price naturally rose,” Mr. Yoon said. by Limb Jae-un