AIG in, Carlyle out in Hanaro vote

The consortium led by American International Group and New Bridge Capital will be the first foreign company to take over a Korean telecommunications firm. Shareholders of Hanaro Telecom approved yesterday the $1.1 billion investment plan offered by the consortium. The plan involves issuing 182 million new shares, which the AIG-New Bridge consortium will take over, to become the largest shareholder of Hanaro with a controlling 39.6 percent stake. Hanaro will get the $1.1 billion infusion in a lump sum on October 31, which will help the financially troubled company ease its cash shortage and give it a better chance to acquire the third player in the broadband industry, Korea Thrunet. Of the $1.1 billion, $500 million will be an investment in the form of shares; the other $600 million will be offered as syndicated loans. LG Group, which has attempted to take over Hanaro itself, suffered a blow to its plans to grow enough to challenge the two domestic telecommunications leaders, KT and SK Telecom. Hanaro’s investment invitation drew the support of 64 percent of the firm’s shareholders at yesterday’s extraordinary shareholders meeting at the headquarters building of Hanaro Telecom in Ilsan, Gyeonggi province. Shareholders voted 88 percent of the 274 million shares outstanding at the meeting. About 75 percent of those who voted approved the new investment. With the instant money, Hanaro will see its capital boosted by about 1 trillion won ($847 million) to 2.3 trillion won; its debt-equity ratio will fall from 156 percent to 110 percent. As of the end of June, the company had 1.7 trillion won in outstanding debts, 300 billion won of which will fall due by the end of this year. Hanaro posted 11.6 billion won in operating profits for the first half of the year, but showed 67.4 billion won in net losses, in large part because of its heavy interest burden. LG Group, in association with the Carlyle Group, had proposed a $1.3 billion investment plan for Hanaro as the shareholders prepared to vote. Arguing that LG and Carlyle’s proposal was not legally binding and that the promised date for the capital infusion was too far in the future, Hanaro objected to the proposal. The firm also engaged in a proxy war unprecedented in Korea. Since the beginning of this month, Hanaro employees have visited and called minority shareholders to persuade them to give the company their voting rights for yesterday’s shareholders’ meeting. LG was grumpy after the vote. “We regret that management control of Hanaro, a ‘fundamental telecommunications firm,’ was sold to a foreign speculative fund at a bargain price so that the urgently needed restructuring among latecomers in the fixed-line telecommunications was abandoned,” the company said in a statement. by Kim Hyo-jin