Korea Telecom selects banks for equity-linked offering

Bankers receive unwelcome Christmas present from the Korean telecom giant - with one notable exception.

Bankers report the Korean government has sprung one its customary surprises sending out a Request For Proposals (RFP) on Saturday for an equity-linked deal for Korea Telecom. Similar to the way that mandates for the exchangeable into Cho Hung and Woori Financial Holdings were handled in October, convertible experts have expressed their frustration at only being given 36 hours to turn the proposal round and see little point doing so anyway when Merrill Lynch is already believed to have been verbally awarded the mandate.

Having failed to sell a strategic stake in Korea Telecom via Merrill's, which acted as strategic advisor, the government is currently in the process of completing two major stock sales, of which the equity-linked deal will represent the second. The first will comprise a block sale, which the government has indicated will be completed by year-end. Local newspapers reported last month that the company was preparing to sell a 10% stake to Merrill Lynch and investment fund Emerging Market Partnership.

The second is said to be $750 million to $1 billion in size and is being scheduled for January. Similar to a previous equity-linked deal for Korea Tobacco & Ginseng, bankers say that the deal may be structured such that it is launched under the auspices of Korea Telecom rather than the government. Instead of the government issuing an exchangeable, the company will issue a convertible, using proceeds from the sale to purchase a percentage of the government's holding.

As of end September, the government still held a 40.1% stake in the company.

Year-to-date, the company has continued to underperform the Kospi, falling 25.45% to Friday's close against a 30.54% rise in the overall index.