Unicom's foreign investors miss out in move for share offering
Monday, June 7, 1999
TELECOMS
YVONNE CHAN
China Unicom's remaining foreign investors are unlikely
to see their investments converted to shares in the event
that the company launches a public stock offering,
according to analysts.
Unicom recently said it was considering an initial public
offering with the intent of raising up to US$1 billion to
provide much-needed capital.
But its overseas investors - the number of which is
unclear because some are thought to have sold out -
have reportedly not been approached about a possible
shareholding opportunity that would help legitimise
Unicom's $1.4 billion in foreign investments.
Mainland authorities have ruled the funds as improper.
Foreign telecommunications firms, barred from direct
involvement in the market, had established
China-China-Foreign joint ventures with mainland
partners, which then set up joint ventures with Unicom
and were paid profits through "consultation" fees.
As the mainland government now refuses to recognise
such ventures, Unicom's foreign partners have no legal
status.
The situation put the investors in a precarious situation
when Unicom recently attempted to freeze $16 million in
revenue payments, said Duncan Clark, a partner at
BDA - a consultancy firm specialising in mainland
business.
He said that if investors were given equity stakes, it
might pose regulatory problems as the government had
limits on foreign ownership in the telecoms industry.
Unicom had already bought out some of its investors,
said Peter Lovelock of the Hong Kong research
consultancy Big Brains.
He said Unicom was seeking to re-negotiate contracts
for others.
One industry observer did not rule out the possibility
that the investors might take legal action against
Unicom's listing vehicle, which could cause headaches
for the underwriter.
He noted recent relations between Unicom and its
foreign investors had been lacking in goodwill, with
overseas partners being "shoddily treated".
Mr Lovelock said the Ministry of Railways - which
plans to become the country's second biggest telecoms
network - looks set to follow the path of Unicom.
"[They are] talking to multinationals as ways of utilising
its network and making money," he said.
The ministry, which has a nationwide network, would
probably leave Unicom to focus on its mobile-phone
and Internet telephony businesses, Mr Lovelock said.
Copyright (c)1999. South China Morning Post Publishers Ltd. All Rights Reserved.
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