Winning consortium launches Hanaro financing

LG Group calls foul as US consortium wins shareholder support for the purchase of Hanaro.

Following an intense struggle, the consortium led by American International Group (AIG) of the US has emerged victorious in its bid to acquire a 39.6% stake in Hanaro Telecom. The total financing package amounts to $1.1 billion and will consist of a $500 million equity injection from AIG and Newbridge Capital as well as a $600 million loan.

LG Group lost out as it aimed to add to its existing 18% holding after offering $634 million for a 51% stake in the second largest internet service provider in Korea. The Korean Chaebol teamed up with US private equity fund Carlyle and was to be backed by Citigroup.

The offer involved the purchase of one of its group members in a hope of tying up all of its telecommunication arms. This defeat has dealt a severe blow to its chances of challenging KT Corp and SK Telecom for the number one position in Korea's telco market.

Before the vote many commentators were suggesting the foreign alliance would have little chance against the LG bid given the extra amount offered and the Korean preference to keep things in domestic hands. Some pointed out, however, that the management of Hanaro had been fully supporting the AIG interest as had a handful of major investors, despite LG's claims that the company had been sold off to a foreign investor at a vastly reduced price.

Development Bank of Singapore, JP Morgan and ABN Amro Bank supported the AIG bid and have fully underwritten the debt portion. The five year amortising facility pays a margin of 325bp over Libor for an average life of four years.

After the announcement of the winning bid on October 21 the arrangers soft launched the financing to a select group of four or five international telecom banks. These houses have been asked to pledge tickets of $75m apiece to join the expanded arranger group on an equal status basis.

In addition to these institutions, the mandated arrangers are targeting a host of domestic banks such as Korean Development Bank, Korea Exchange Bank and Hana Bank in the hope of signing them up as underwriters. These banks did not commit to the transaction before the outcome of the shareholders meeting as they did not want to jeopardise their relationships with either side, especially the LG Group, which provides a large amount of business in Korea.

Now that these relationship issues have been resolved as there is only one winner, the mandated arrangers are aiming to attract a total of eight to ten foreign and domestic banks in at the top tier. Feedback so far has been very encouraging and one bank has already formally joined the transaction with a further commitment due Friday and more scheduled to sign up next week.

Once the expanded arranger group has been completed the deal will be launched into general syndication. Market observers were divided over the level of fees that will be on offer for the transaction as question marks have been raised over the borrower's ability to pay off it's outstanding debt, a large portion of which is due to mature shortly and will be refinanced by this loan.

One senior loan syndicator said that banks had seen few comparable transactions this year. Dealogic figures show that just four acquisition related financings emerged from Korea this year.

The only deal to feature a US dollar tranche was the purchase of Korea Development Leasing Corp that contained a $160 million tranche. The financing was so well received in underwriting that the facility did not go to general and observers believe that despite the difference in size this reception bodes well for this transaction.

Bankers looking at the deal suggest that the appetite for the credit will be strong as the borrower has recently returned to the black, recording a profit of Won6.1 billion ($5.13 million) compared with a Won165.2 billion ($140 million) loss the previous year. Further to this they point out that the funds will enable the company to resolve its longstanding liquidity issues and allow it to push forward in the future.

Responses from underwriters are due in the next two weeks with general syndication scheduled to be launched in early November.

¬ Haymarket Media Limited. All rights reserved.

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