SK Telecom raises $452m for e-commerce unicorn

SK Telecom has raised W500 billion ($452 million) for its online shopping business, 11st, as part of its plan to spin off the business into a standalone entity, marking the second-biggest fundraising ever for an unlisted company in South Korea.

South Korea’s biggest telecommunications service provider said on Wednesday that it is selling about 18% of 11st to Korea National Pension Service, Korean Federation of Community Credit Cooperatives and private equity firm H&Q Asia Pacific.

The sale of convertible preference shares values 11st at $2.5 billion – about four times the firm’s sales of $621 million last year – on a post-money basis and makes it South Korea’s fourth so-called unicorn after Coupang, Yellow Mobile and L&P Cosmetics.

The transaction is of significant importance to Korea’s burgeoning private funding market as the number of technology startups – and potential unicorns worth a billion dollars or more – grow.

Best-known as an economy dominated by large conglomerates, Korea is striving to reduce its reliance on chaebols by supporting the growth of startups and small and medium-sized enterprises through various public-to-private funding and incubator programmes.

11st’s latest capital raise is a good example of public-to-private funding. In particular, the deal is the first major private deal from Korea’s national pension fund, which has over $21.5 billion of assets under management allocated for private equity investment. It also resonates with broader government-led efforts to overhaul Korean manufacturing through the application of next-generation technologies.

At $452 million, 11st's fundraising is Korea’s second-largest in the private market after rival Coupang raised $1 billion in June 2015 (see table below) and keeps the company on course for an eventual public market listing.

11st has said it will pursue an initial public offering at some unspecified point in the future.

E-COMMERCE BATTLE

For SK Telecom, 11st’s external fundraising helps to relieve some of the financial pressures from funding the online marketplace’s huge expenses on marketing and promotion. This is particularly important as SK Telecom needs to preserve cash so it can bid effectively for 5G spectrums over the next two years.

Operating as a standalone business and with the latest funding, 11st will have sufficient firepower to compete with the likes of Coupang and GMarket (eBay Korea). These companies have been spending massively on promotions and discounts to accumulate users in recent years.

Korea is the third biggest e-commerce market in Asia behind China and Japan, according to local consultancy Nowak & Partner. Total e-commerce revenue has been growing steadily at about 10% per year to $44 billion last year from $29 billion in 2013.

The country is well-positioned for further e-commerce growth as it is among the world’s leaders in broadband internet and smartphone penetration, with over 99% of Korean households having internet access as of the end of 2016.

The US Department of Commerce estimates that Korea’s growing e-commerce market is poised to challenge traditional retailers. As a result, many bricks-and-mortar store operators are transforming the way they sell their products through partnerships with online shopping sites.

11st, also known as 11 Street, entered into a strategic alliance earlier this month with BGF Retail, Korea’s biggest convenience store operator by number of stores.

The two companies formed a 50/50 joint venture known as Hellonature to sell fresh food products. It has been losing money for the last two years but is striving to improve profitability by allocating its marketing resources and data-based capabilities more efficiently, according to 11st marketing material seen by FinanceAsia.

South Korea’s top five private fundraisers