China Unicom has confirmed that it will buy back a 3.79% stake held by SK Telecom for USD1.28 billion. The deal marks the end of the South Korean firm’s three-year investment in Unicom and is a blow to SK’s ambition to expand in the world’s largest mobile market. SK Telecom bought USD1 billion worth of bonds in Unicom in 2006 – which were converted into a 6.6% stake in the Chinese company a year later – as it sought new revenue drivers in overseas markets to counter slowing growth at home. Its interest in Unicom was diluted to 3.79% per cent following the merger between Unicom and China Netcom last year.
As part of the reorganisation, Unicom was awarded a 3G licence based on the W-CDMA standard. It also sold its CDMA business to China Telecom. The sale undermined the strategic significance of SK Telecom’s investment in the group since the South Korean operator’s expertise lies in CDMA. ‘This decision falls in line with our vision of becoming a global [information and communication technologies] leader, under which we are making efforts to expand our areas of interest to convergence business that includes distribution, internet and finance. While adjusting our business portfolio based on the changes in the growth strategy, we made the decision to sell our China Unicom shares,’ SK Telecom said in a statement published by the Financial Times.
The disposal comes after Telefonica, Unicom’s other foreign partner, announced that it would seek to broaden its alliance with the Chinese group. Telefonica is set to increase its stake in Unicom from 5.38% to 8.37% for about USD1 billion. Unicom, meanwhile, plans to buy a 0.9% stake in the Spanish company for a similar amount of money.
SK Telecom said it expects the transaction to close by mid-November after Unicom’s independent shareholders approve the plan. China Unicom said it will fund the share repurchase from its cash flow and working capital, or external financing, or a combination of the three sources of funding.