SK Telecom Co., South Korea's top mobile phone company, said Wednesday it will spend as much as US$1 billion to buy convertible bonds of China Unicom Ltd. early next month, in a drive to secure a foothold in the world's fastest growing mobile phone market.
The board of SK Telecom approved on Tuesday the plan to buy the three-year bonds of China Unicom, which will be converted into a 6.67 percent stake in the Chinese mobile phone operator, the company said in a regulatory filing. SK Telecom will buy the bonds on July 5, according to the statement.
SK Telecom, which holds more than half of the 39 million subscribers in South Korea's wireless market, has been looking to expand into the Chinese market, as its plans to develop new revenue sources at home are struggling with the market's near-saturation. China Unicom is the mainland's No. 2 mobile company with some 130 million subscribers.
"China is an attractive telecom market with its growth eyed in terms of both quantity and quality," SK Telecom Chief Executive Officer Kim Shin-bae said in a statement. "The strategic alliance through the purchase of convertible bonds will give SK Telecom a foothold for us to directly make inroads into the Chinese market."
At 6:00 p.m. on Wednesday at the Beijing headquarters of China Unicom, Kim plans to sign a contract to buy the bonds, the South Korean company said.
However, analysts have been pessimistic about SK Telecom's plan to invest in the Chinese market, saying the South Korean company may find it difficult to do businesses in the market known for its unfriendly attitude toward foreign investors.
In a conference call, Song Hyun-seung, head of SK Telecom's investor relations team, said the company decided to buy the bonds instead of outstanding shares in an effort to "minimize possible risks from the investment." Song declined to specify the potential risks, citing the "position of its Chinese partner." "The news is burdensome to SK Telecom stock in the short term," said Choi Nam-gon, an analyst at Tongyang Investment and Securities, in a research note. "Over the next several years, SK Telecom will be unlikely to increase its dividend payments because of the investment." The analyst also said uncertainty over the Chinese government's telecom policy would have a negative impact on SK Telecom's plan to expand its presence in the neighboring country.
Shares of SK Telecom fell 1.23 percent to close at 201,000 won in Seoul.
Seoul, June 21 (Yonhap News)
SK Telecom to buy $1 bln of bonds in China Unicom |
