Kepco brings PowerCom to equity markets

One of the most intensely fought after mandates from Korea this year is about to be awarded, as Kepco selects lead managers for the listing of its telecommunications and cable network, PowerCom.

The Korea Electric Power Corporation (Kepco) is poised to choose between eight competing consortia of domestic and international banks that have teamed up for what is expected to be an $800 million to $1 billion listing on Nasdaq and Kosdaq.

The eight comprise: Deutsche Bank, which is bidding with Samsung Securities; DresdnerKB and Tong Yang Securities; ING Barings and Good Morning Securities; JP Morgan and SK Securities; Lehman Brothers and LG Securities; Merrill Lynch and Hyundai Securities; Salomon Smith Barney and Dongwon Securities; and UBS Warburg and Daewoo Securities.

Bankers say that the ING Barings and Good Morning Securities consortium has a slight edge, having submitted the lowest fees, while Deutsche and UBS Warburg both have extremely strong banking relationships with the group. Indeed, UBSW has been involved in virtually every single bond and equity offering by the company in recent years.

Goldman Sachs and Morgan Stanley Dean Witter are the most notable omissions to the list. The former recently led a Nasdaq listing for potential competitor Hanaro Telecom, while the latter has a joint equity and debt mandate from Korea Thrunet.

Thrunet has recently become a particular thorn in Kepco's side. The internet service provider (ISP) was the first Korean company to offer high-speed (broadband) access, but did so by entering a three-year agreement with PowerCom to use Kepco's electricity cables as its delivery network. However, the company did not have exclusivity rights and after Kepco subsequently signed a similar agreement with rival Dacom, the republic's largest ISP, it decided to build a network of its own.

Kepco gave the company permission to use its electricity poles in some regions, but not in others. "A strange situation developed whereby Thrunet employees would be out in the dead of night laying new cables, followed by Kepco employees out the next night trying to cut them," explains one observer.

Who gains control of the network following its full divestment by Kepco will be one of the key criteria by which investors judge it. Most analysts value the company at between $3 billion and $4 billion. Future growth projections, however, are hard to quantify since the company's earnings potential could radically change under new ownership and amended government legislation.

At the moment, PowerCom is regarded as having a stable but unexciting earnings base and simply leases network access on a wholesale basis to competing domestic telecom companies. Yet, should either SK Telecom or the LG group, which owns Dacom, secure large stakes in PowerCom and persuade the government to allow it to have retail access, the picture will completely change.

Under PowerCom's original divestment schedule, a 20% stake is due to be auctioned off to domestic bidders by the end of this month, with a further 30% to be sold to strategic investors by the end of September. This would then be followed by the listing of a further 16% on Nasdaq by the end of December, 10% on Kosdaq by September 2001, with the remaining 24% to be sold to appropriate parties by December 2001.

Bankers say, however, that it is uncertain whether Kosdaq will follow Nasdaq or vice versa, as the company remains open to either depending on market conditions.

Neither Hanaro nor Thrunet are faring very well on either exchange. After listing 24 million American depositary receipts in March at $15.51 each, for example, Hanaro has seen trading slip to $6 as of Thursday. Thrunet has done equally badly and was trading at $13.75 on the same day, down from an $84 high late last year.

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