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June 5, 2006 10:02 pm

SKT to buy China Unicom stake for $1.1bn

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South Korea’s biggest mobile phone operator SK Telecom is planning to buy a 10 per cent stake in China’s second-largest mobile group China Unicom for about $1.1bn in a move that would give it a foothold in the lucrative Chinese market.

SKT is now in the process of hiring advisers to make the investment and the mandate is likely to be awarded “imminently,” according to bankers who have been approached.

“SK Telecom is looking to make a deal this year – they have 50 people looking at a very large investment into China,” said one banker in Seoul. Others confirmed the target was China Unicom.

South Korean mobile operators have been struggling to develop new revenue sources in their saturated $17bn home market.

They have been investing heavily in third generation networks in the hope that wireless data services – which now contribute about a quarter of SKT’s total revenue – will create a new market.

However, analysts were sceptical about the investment, saying that China Unicom had an unclear future and it was unlikely the Korean company would have much say in any restructuring.

China Unicom’s revenues and profits are dwarfed by those of its larger rival China Mobile, and its shares have fallen by more than half since listing in Hong Kong in 1999.

Based on its current market capitalisation of about $11bn, the deal would be worth about $1.1bn.

Chang Xiaobing, China Unicom’s chairman and chief executive, in March said that the mobile operator was searching for a domestic or foreign strategic partner to help develop its mobile services for 3G on the mainland.

Analysts said Chinese telecom companies had large capital expenditure demands and still had to account for 3G, raising the prospect that investors such as SKT would be tapped for further funds.

Cindy Kang, an SKT spokeswoman, on Monday said the company was “continually looking for possibilities to enter the Chinese market” but declined to comment on any investment in China Unicom.

The Korean company would be following other telecom groups eager to enter the burgeoning Chinese mobile market.

Vodafone has 3.3 per cent of China Mobile, the main wireless operator, while Telefónica of Spain last year won approval from the Chinese government to double its stake in China Netcom, the second largest fixed-line operator, to 9.9 per cent.

If completed, the share purchase would take SKT’s total investment in the country to more than €1bn.

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