Powercom moves ahead with Nasdaq listing

Korea Electric Power Corporation''s (Kepco) telecommunications subsidiary PowerCom has selected ING Barings and Good Morning Securities to lead manage a roughly $768m Nasdaq listing.

The consortium beat seven others to win the prestigious mandate to float Kepco's telecommunications and fibre optic cable network PowerCom, which is being progressively sold off under the government-owned utility's restructuring and privatisation programme.

Rivalry to secure the deal, however, has provoked strong responses from some bankers who contend that the two only won because they submitted a fee proposal of 1.9%.

A number of US investment houses were said to have declined to bid for the deal following the issuer's insistence that all banks submit fee proposals below 3% and be prepared to absorb both the underwriters' and issuers' expenses. Some observers further question the European bank's placing power in the US where most of the prospective offering will be allocated.

As one puts it, "One has to wonder whether McDonalds or Ford Motor would have won had they put in a proposal at 1.8%. They certainly both have better US retail and institutional distribution than ING Barings and about the same level of relevant experience." 

European bankers and many potential issuers, on the other hand, bridle at what they perceive as a cartel of US bulge bracket firms keeping fee levels for US deals artificially high. To compete, many European banks have also bought US boutique operations to broaden their placement power, which in ING's case comprises Furman Selz.

ING has also previously done advisory work for the company and alongside Salomon Smith Barney, joint lead-managed Kepco's last ADR in March 1999. Fees for that deal were also a tight 2% according to bankers.

The other seven consortia bidding the current deal comprise: Deutsche Bank and Samsung Securities; DresdnerKB and Tong Yang 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.

The first stage of the divestment programme also took place early this week with the auction of a 20% stake in the company to interested domestic parties. A total of 49 companies took part in the bidding, but only two - SK Telecom and Pohang Iron & Steel (Posco) - had their bids accepted.

The two have each purchased a 5% stake in PowerCom at Won32,000 per share in a move which values the entire company at Won4.4 trillion ($4.88 billion). On this basis the Nasdaq ADR, which is scheduled for later this year and will comprise a further 16% of the company, should raise $768 million.

This figure is still a moving target, however, since a further 30% sale of the company to interested foreign and domestic buyers in September may result in a higher bidding price. And although SK Telecom now has a head start in the race to acquire PowerCom, analysts argue that other rival telecommunication companies keen to gain control of the company's network should not be ruled out.

PowerCom has built a high-speed (broadband) cable network over the top of Kepco's electricity poles and leases access on a wholesale base to domestic telecommunications companies. Observers consequently conclude that whoever gains control of the network and persuades the government to allow it retail access, stands to command an extremely powerful position in the Republic's highly competitive telecommunications market.

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