Jun 16, 2021
SK Telecom Plans $5 Billion Splurge to Become Korea’s SoftBank
(Bloomberg) -- SK Telecom Co., South Korea’s largest mobile carrier, wants to shed its staid image and take on a more dynamic role as an investor in tech startups à la SoftBank Group Corp.
Armed with a $5 billion budget for acquisitions over the next three years, the company is setting out to find the next Coupang Inc., the Korean e-commerce giant whose massive initial public offering fueled SoftBank’s record profit last quarter. About $2 billion of that will come from the proceeds of planned IPOs by five SK Telecom subsidiaries, some of them potentially listing American depositary shares in New York, according to SK Telecom’s senior executive.
“Our interest is very simple, we want our share price to go up. It’s very much like the Nasdaq-listed companies,” Executive Vice President Huh Seok-joon said in the company’s first interview after announcing its corporate split-off. “We have done everything we can to improve the shareholder value.”
These moves are part of a tectonic shift underway at South Korea’s third-largest chaebol, one of the family-controlled conglomerates that dominate the country’s economy. Concern over corporate governance -- potentially favoring the founding family over shareholders’ interests -- at giants like Samsung Electronics Co. and Hyundai Motor Co. has led their stocks to trade at a perennial “Korea discount” relative to international peers.
Among a raft of reforms, SK Telecom’s board decided last week to split the 37-year-old business into two separate companies. The traditional mobile and telco business will focus on steady cash flows and dividends while the tentatively named SKT Investment Co. will be dedicated to investment, growth and IPOs.
Both stocks will be re-listed in November after a one-month hiatus, pending approval by shareholders. The plan also includes a 5-1 stock split to make shares more accessible to South Korea’s influential retail investors who account for about three quarters of daily turnover.
They are the latest in a series of measures SK Telecom has recently unveiled to boost shareholder returns, including the introduction of a quarterly dividend and cancellation of almost all of its treasury shares.
“Retail investors still find telecoms a boring stock and we are working very hard to make that otherwise,” Huh said. “The new company is a platform company similar to Kakao and Naver.”
Once the split is complete, SK Telecom aims to boost its net asset value by 30% each year to 75 trillion won ($67 billion) by 2025, from 26 trillion won this year, through aggressive investment and spending.
SK Telecom’s shift has been cheered by investors, especially foreign institutions who added net 1.5 trillion won worth of SK Telecom shares this year, more than any other Korean stock, according to Korea Exchange data. Shares rose 38% so far this year, peaking at the highest level in about two decades last Friday. That compares with the benchmark Kospi’s 14% gain in 2021.
The stock is still about 30% shy from its heyday in 2000 and is trading at just 10 times its earnings, at a time when compatriot mobile platform company Kakao Corp. trades at about 70 times its profits, according to Bloomberg data.
The company isn’t shy about borrowing the blueprint for developing a successful investment arm that its Japanese peer led by Masayoshi Son pioneered. Huh, who is one of the first five senior executives to join the newly created investment firm, said SoftBank and SK Telecom’s paths “may be the same.” Like SoftBank and its ownership of chip designer ARM Ltd., SK Telecom also has a foothold in semiconductors as it holds the largest share of SK Hynix Inc., one of the world’s dominant trio of memory producers.
“SoftBank is selling its semi business. They didn’t succeed in semiconductor but they succeeded in investing in the platform business especially on the mobility side,” Huh said. “If you look at us, we are successful in semiconductor and we are successfully entering the platform business.”
The stake value of Hynix owned by SK Telecom has grown more than six times since the carrier bought a 21% stake for $3 billion in 2011. The parent SK Group is continuing to add to its semiconductor interests through deals like Hynix’s $9 billion acquisition of Intel Corp.’s storage division, which is going through regulatory approvals.
SK Telecom is looking for M&A targets across all categories of the semiconductor industry -- including memory, production equipment and fabrication -- and those could be multibillion-dollar transactions or of more modest size, Huh said. The new investment company is liberated from the competitive and antitrust concerns that might prevent Hynix from bidding on particular companies, he added.
“There is a global shortage of semiconductors, so I think there’s a very large opportunity for us,” the executive said. “We will definitely make more acquisitions and push for both organic and inorganic growth to become a world leader in the semiconductor business.”
Unicorn or Bust
Demand for stock offerings in South Korea, especially among retail investors, has been extremely high recently and there are few reasons to consider floating shares outside the country, Huh said.
SKT Investment plans to join the IPO boom in South Korea by listing five subsidiaries in the benchmark Kospi, starting with Microsoft Corp.-backed One Store Co., the mobile app marketplace that’s expected to double in value to at least $1.3 billion before going public as early as the end of this year.
Up next will be security firm ADT Caps Co., also eyeing an IPO within the next 12 months. Streaming service Content Wavve Corp., mobile commerce firm 11 Street and T-Map Mobility aim to list their shares in the next three years, with a minimum valuation threshold of a billion dollars.
T-Map Mobility, which operates various mobility platform services and formed a joint venture with Uber Technologies Inc., is the one company that Huh said he’d personally like to see dual-listed in South Korea and in the U.S. in the form of American depository receipts, he added.
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