Government Moving to Ease Restrictions on Foreign Ownership
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
− The government is considering amending the Telecommunications Business Act so that foreign entities can own more than 49% of major Korean telcos’ shares. The proposed amendment is currently under review by the Science, ICT, Broadcasting, and Communication Committee after passing the State Council.
− If the restrictions on foreign ownership are eased, domestic telcos will likely attract additional investment. In particular, KT, which has the highest foreign ownership rate and is not currently included in the MSCI index, is expected to benefit the most.
− Currently, foreign ownership in Korea’s three major telcos is limited at 49%. For this reason, the firms occupy only a small portion of major global indices, such as MSCI and FTSE, due to their low current ratios. If the 49% limit is eased, their current ratios will improve significantly, which should lead to higher representation in global indices, resulting in greater capital inflow not only from foreign investors, but also domestic institutional investors.
− The amount of capital tracking the MSCI EM index is estimated at US$275bn (W303tn). If the limit of 49% is lifted entirely, the representation of telecommunications companies could increase by 0.02%p in the MSCI EM index. Such a change would boost capital flow towards SK Telecom by W326bn, KT by W220bn, and LG Uplus by W89bn. If we assume a 10%p easing of the foreign ownership limit, the inflow would stand at W64bn for SK Telecom, W132bn for KT, and W18bn for LG Uplus.
− In particular, KT, which is not currently included in the MSCI index, would benefit the most, a factor that likely assisted in the firm’s share price surge yesterday.
− For reference, as of Feb 16, foreign ownership in Korea’s three telcos stood at 35.5% for SK Telecom, 43.6% for KT, and 30.3% for LG Uplus.