SK Telecom to be Unicom's No. 2 shareholder

South Korea's SK Telecom Co. will acquire a 6.6 percent stake in China Unicom Ltd. by converting US$1 billion of China Unicom bonds, cementing its foothold in a market of more than 500 million subscribers, the world's largest.

South Korea's top mobile operator is looking to overseas markets such as China and the United States for growth. Almost nine in 10 South Koreans already have a mobile phone and there is little room for domestic expansion.

The conversion makes SK the second-biggest shareholder in China's No.2 mobile operator.

Analysts estimated SK would reap 370 billion won (US$389 million) profit from the conversion thanks to the share price rise, and is expected to book the gain in the third quarter.

"SK can increase its investment further once uncertainties from China's third-generation (3G) licenses and industry restructuring clear," said Yang Jong-in, an analyst at Korea Investment & Securities.

A stake, of say 15 percent, would give it a more definite say and a stronger foothold in the market."

SK Telecom said it had no immediate plan for an additional investment, adding the conversion was aimed at further business cooperation with the Chinese company.

"It would be better for SK Telecom to be a shareholder than remaining as a creditor in order to solidify its foothold to enter the Chinese market through a stronger strategic partnership with China Unicom," SK Telecom said in a statement.

China Unicom, which competes with the bigger China Mobile Ltd., can use SK's expertise in running code division multiple access (CDMA) networks and advanced 3G service, analysts said.

Chinese telecom companies are preparing for the eventual launch of a 3G service, which has long been delayed and is now expected in 2008, hoping for fresh sources of revenue.

SK Telecom runs an advanced 3G service in South Korea, offering video calls, wireless Internet and video streaming via cellphone.

China Unicom chairman and CEO Chang Xiaobing said in a statement the bond conversion "deepens the cooperation of the company and SK in mobile communications business areas and further strengthens the capital structure of the company."

SK Telecom bought China Unicom's US$1 billion zero-coupon convertible bonds in July 2006.

With the stake acquisition, SK will get one seat on the China Unicom board.

China Unicom said it would issue 899.75 million new shares to SK Telecom at HK$8.63 per share.