South Korea: SK Telecom investors angered by Posco buy

SK Telecom was on Wednesday accused of breaking a promise not to support its troubled sister companies, when it agreed to buy a stake in Posco, the world's second-biggest steelmaker, from SK Corp, its cash-strapped oil-refining affiliate, says the Financial Times

Shares in SKT fell more than 8% in response to the acquisition, which critics said was designed to aid SK Corp rather than benefit shareholders, increasing concern about standards of corporate governance within South Korea's third-largest conglomerate.

SK Corp is threatened by the possible collapse of SK Global, the group's fraud-ridden trading arm, in which the oil refiner has a large stake.

Merrill Lynch, the investment bank, said investors would suspect that SKT's acquisition of the Posco stake was at least partly intended to provide cashflow to SK Corp.

SKT agreed to pay SK Corp Won332.5bn for a 2.73% stake in Posco, arguing that the deal was necessary to prevent Posco selling its 6.38% stake in SKT. "We agreed to take over SK Corp's stake in Posco to prevent an overhang on our stock," said an SKT official. "The deal is intended to protect our share price rather than support SK Corp."

However, SKT's explanation failed to convince investors. "This action reaffirms our view that corporate governance concerns remain at SKT," said Morgan Stanley, the investment bank, in a report.

Concerns about corporate governance have contributed to the 17% fall in the value of SKT shares this year, compared with an 11% increase in Seoul's Kospi share index.

SKT--considered the best managed and most independent of companies within SK Group--had until now remained largely aloof of the crisis gripping the conglomerate. The company had promised shareholders it would not provide unreasonable aid to affiliates. But Wednesday's deal raised fears that the wireless operator was succumbing to pressure from its parent group to support SK Global and SK Corp.

The fate of SK Global is expected to become more clear on Thursday, when creditors meet in Seoul to decide whether to bail out the company or put it into court receivership. SK Global's future has been in doubt since March, when it was found to have fraudulently inflated its profits by US$1.2bn. SK Corp was dragged into the crisis because of its close financial ties to its affiliate.

The SK scandal has brought a reminder of the opaque structures and lack of transparency that characterise South Korea's family-owned conglomerates, or chaebol.

(c) 2003 Financial Times Information Limited.

Source: Financial Times.