China Tel Favors Cash Over C&W HKT Link
HONG KONG, Jul 8, 1999 -- (Reuters) By selling off
part of its stake in Cable & Wireless HKT, China
Telecom is signaling that cash is more useful in
developing its domestic business than a strategic
alliance with the Hong Kong telecoms carrier.
Analysts said on Thursday that China Telecom,
ultimately controlled by China's Ministry of
Information Industry, is better off taking its funds out
of C&W HKT <0008.HK> and using them to build
new networks and develop new businesses.
"There is no need for China Tel to hold this stake,"
said Tai Fook Securities analyst Stanley Tang. "They
need the cash for their own infrastructure."
China Telecom raised about HK$3.15 billion by
placing 156 million C&W HKT shares with
institutional investors at HK$20.20 a share. The
stake represented 1.3 percent of C&W HKT's total
share capital, leaving China Telecom with a 10.86
percent stake valued at about HK$25.61 billion ($3.3
billion).
Analysts said the deal marked a turnabout from two
years ago, when China Telecom first bought into
C&W HKT, acquiring a 5.5 percent stake from Cable
and Wireless Plc .
At the time the deal was hailed as opening the door
to China for the company previously known as Hong
Kong Telecommunications Ltd.
Under the plan, Cable and Wireless was to sell more
C&W HKT shares to China Telecom to give it an
equal holding in the Hong Kong carrier in return for
unspecified investment opportunities in China. But
neither action materialized.
"They're not doing anything together," Tang said.
"You don't really see what kind of synergy or
cooperation they have and China Tel is trying to
establish more by itself."
Analysts said the stake was bought largely for
political purposes prior to Hong Kong's handover to
China from Britain in July 1997.
But political priorities have changed, and analysts
say in China's bid for World Trade Organization
membership, it has little to gain by giving a strategic
advantage to Britain's No. 2 phone company.
"They're not going to be short of potential partners
when and if the market opens to outsiders," said
HSBC Securities telecommunications analyst David
Gibbons.
Since the C&W HKT shares were not held by Hong
Kong-listed China Telecom (Hong Kong) Ltd
<0941.HK> but by its parent, China Telecom (Hong
Kong) Group Ltd, the proceeds from any share sales
will flow back to the group's upper echelons, analysts
said.
China Telecom said the funds would be used to
restructure the domestic telecommunications
industry.
Some of the funds may be disbursed to newly formed
telecommunications entities in China, in effect
helping to finance China Telecom's competition, said
Nomura International analyst Richard Ferguson.
China recently launched China Unicom, a small state
phone company to compete with near-monopoly
China Telecom in the mobile market. Unicom is
expanding to other services and state media said
this month it was expected to list shares in Hong
Kong or on Nasdaq in a $1 billion initial public
offering in November.
China also is expected to soon approve the
establishment of another big telecommunications
firm that would use the railway industry's
communications network. With 120,000 km of phone
lines and gross assets of about 10 billion yuan, the
new firm would rank second behind China Telecom.
In terms of magnitude of investment needed to create
true competition in the industry the HK$3.15 billion
from the most recent sale "would be a drop in the
bucket", said Salomon Smith Barney analyst Lloyd
Fischer.
In the meantime, analysts said concerns about
additional sales by China Telecom would put
pressure on C&W HKT's shares, which on thursday
fell an additional HK$0.50 or 2.475 percent to
HK$19.70 after a 6.5 percent fall on Wednesday. ((c)
1999 Reuters) |
