June 25 (Bloomberg) -- SK Corp., South Korea's largest oil refiner, may sell as much as 6.6 percent of affiliate SK Telecom Co. for $1.05 billion, to repay holders of bonds that convert into the cellular phone operator's stock.

A filing in the U.S. yesterday for SK Corp. to sell American depositary receipts of SK Telecom was one option the Seoul-based company has to refinance the debt, spokeswoman Lee Ji Young said. SK Corp. has yet to decide how to repay the $1.25 billion of bonds it sold three years ago, she said.

SK Corp. needs to raise funds before Aug. 1, when holders of the bonds exchangeable into shares of SK Telecom, Korea's biggest cell phone operator, can begin demanding cash payments. SK Telecom's ADRs need to rise 22 percent before it would be profitable to convert the bonds into stock.

``SK Corp. will try to minimize its losses,'' said Park Hyung Ryul, who helps manage about $400 million at KTB Asset Management Co. in Seoul. ``Whether that will be by issuing new exchangeable bonds or selling ADRs at a premium, we'll just have to see.''

Shares of SK Telecom in Seoul have declined 23 percent since the exchangeable bonds were sold in July, 2002, buffeted by increasing competition in a market where three out of four people own a cellular phone.

KT Corp., Korea's largest telecommunications operator by revenue, in January redeemed $1.1 billion of convertible bonds after its stock price fell for a second year.

Exchangeable Bonds

SK Corp. said last month it was considering selling new exchangeable bonds to refinance the debt.

Momenta (Cayman), an investment unit of SK Corp., may sell ADRs representing as many as 5.45 million common shares of SK Telecom at a maximum price of $192.92 each, SK Telecom said yesterday in a filing with the U.S. Securities and Exchange Commission.

SK Corp.'s Lee said today the SEC filing is an application and doesn't mean that the company will sell ADRs.

Yang Jong In, a telecom analyst at Korea Investment & Securities Co., said in a May 13 note to clients that SK Corp. would likely decide to sell new exchangeable bonds at a lower price than in the 2002 issuance because of the drop in SK Telecom's stock.

SK Corp. is rated Ba2, the second-highest non-investment grade, by Moody's Investors Service and BB+, the highest junk rating, by Standard & Poor's. SK Telecom is rated A3 by Moody's and A- by S&P, in line with ratings assigned to the Korean government.

Should the refiner sell ADRs, the sale would be managed by ABN Amro Holding NV, Merrill Lynch & Co. and SK Securities Co., according to the SEC filing.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net; Young-Sam Cho in Seoul at ycho2@bloomberg.net

Last Updated: June 25, 2005 02:08 EDT