KT prepares to spin off its cloud business

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KT prepares to spin off its cloud business

KT is sharpening its focus on the cloud computing business with a large-scale investment and a spin-off plan.  
KT announced Feb. 15 that it will spin off its cloud business and call it KT Cloud.  
On the same day came reports that the company invested 130 billion won ($109 million) in MegazoneCloud, a local cloud service start-up, a deal later confirmed by the two companies.  
The company is betting on the growth of cloud services after remote working and online classes boosted demand for on-demand computing services over the internet.
KT expects the spin-off to help the new company make the swifter decisions necessary for the fast-growing segment.  
“[The spin-off] will allow for quick, flexible decision –making conducive to the nature of cloud and data center business while focusing on partnerships and investment,” KT said in a statement.  
Parent KT will own a 100 percent stake in KT Cloud in exchange for 1.6 trillion- won worth of non-cash assets given to the subsidiary.  
The new subsidiary will come into existence in April after an annual general shareholders’ meeting in March.  
Yoon Dong-sik, KT’s vice president, has been tapped as president of the new company.
Analysts struck a positive tone for the planned separation.  
“If KT continues to keep the cloud business division, the unit could hardly receive a boost given the competion for resources and budget with other divisions handling 5G, finance or media content,” said Kim Hoi-jae, an analyst at Daishin Securities.  
“That structure would make it hard to swiftly respond to the fast-growing market,” Kim said.  
Kim predicted the spin-off will not be embroiled in the type of the controversy seen at Kakao and LG Chem given the small size of the cloud business.  
“KT’s cloud and data center business accounts for 1.8 percent of all sales last year,” Kim said, “So, it won’t likely erode valuation of the parent company.”
KT’s cloud and datacenter division brought in 455.9 billion won in sales, up 16 percent over a year earlier.  
Kakao and LG Chem recently came under fire for spinning off profitable businesses and taking them public, a maneuver that shareholders of the parent companies resented.  
In response to such concerns, KT said that it will change its articles of incorporation during the March shareholders meeting to distribute the shares of KT Cloud to existing KT shareholders should the subsidiary go public.  
With over 8,000 clients, KT is the second largest cloud service provider in Korea after Amazon’s AWS in terms of market share.  
Ahn Jae-min, an analyst at NH Investment & Securities, projected that the new structure will allow the cloud unit to capitalize on the growing demand.  
“The decision could help KT cement a leading position in the cloud business,” the analyst said.  
“More companies are tapping cloud services and public corporations vowed to shift to cloud-based software and platforms by 2025”
In the meantime, KT invested 130 billion won in MegazoneCloud, the largest cloud service provider in Korea, which helps cloud operators like KT and Amazon with daily IT operations and technical support for clients. 
Both declined to specify the equity holding KT will own.  
MegazoneCloud said that the investment is also intended to foster strategic partnerships in the cloud business.  

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]
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