2nd UPDATE:SK Telecom Sells China Unicom Stake For US$1.28 Billion

SK Telecom Co. (SKM) said Monday it will sell its entire 3.8% stake in China Unicom (Hong Kong) Ltd. (CHU) back to the Chinese telecommunications operator for KRW1.5 trillion (US$1.28 billion) to improve its financial position after the company incurred a loss from the investment.

In a statement, SK Telecom, South Korea's largest wireless operator by subscribers, said it agreed to sell its entire 899.75 million holding at HK$11.105 each.

That would represent a discount of 1.4% to China Unicom's Friday closing price of HK$11.26 a share.

SK Telecom declined to comment on the amount of the loss it incurred.

Spokeswoman Lauren Kim said it will shift its focus to business cooperation with Chinese counterparts instead of purchasing stakes in any particular company.

The sale of the stake suggests that SK Telecom's overall business portfolio is now shifting to more broader markets from just mobile communications.

"China is a big market for the convergence business, so there has been a change in the business growth strategy within the company," said another SK spokeswoman Irene Kim, who also said there is a possibility that the Korean mobile operator could tie up with other companies in China.

She declined to provide names.

SK Telecom said it expects the transaction to close mid November after China Unicom's independent shareholders approve the plan.

China Unicom said it will fund the share repurchase from its cash flow and working capital, or external financing, or a combination of the three sources of funding.

SK Telecom Chief Executive Jung Man Won will resign as a director on China Unicom's board on completion of the transaction, the Chinese telecommunications operator said in a separate statement.

In 2006, SK Telecom agreed to buy US$1 billion worth of convertible bonds in China Unicom and formed a business alliance on code division multiple access business technology to cooperate in the areas of handsets, network infrastructure and value-added services for mobile phones. In 2007, SK Telecom converted the bonds in full at HK$8.63 a share.

Analysts said SK Telecom's stake sale came as no surprise as China Unicom has strengthened its partnership with Spain's Telefonica SA (TEF) recently and Unicom also sold its CDMA operations to China Telecom Corp. (CHA) last October which left CDMA mobile operator SK Telecom little to contribute to the Chinese carrier.

CDMA is a mobile technology widely used in the U.S. and South Korea.

Analysts also said the stake repurchase is neutral to China Unicom though the cash deal will likely lift the carrier's gearing ratio slightly.

BNP Paribas analyst Michele Mak said the deal is expected to raise China Unicom's debt-to-equity ratio to 50% from 42%, but the higher gearing ratio is "still manageable."

For the three months ended June 30, SK Telecom's net profit rose to KRW311.6 billion from KRW298 billion a year earlier. At the end of June, SK Telecom had total assets of KRW19.5 trillion, while its total liabilities amounted to KRW8.6 trillion.

-By Lorraine Luk and Jung-Ah Lee, Dow Jones Newswires; 852-2802-7002; [e-mail]

(Kyong-Ae Choi contributed to this article.)