China Unicom must untangle ventures before offer
Wednesday July 14, 5:20 am Eastern Time
By William Kazer
SHANGHAI, July 14 (Reuters) - China's upstart telephone firm China Unicom could get a
warm market welcome for its planned $1 billion stock offer but it needs to untangle its
snarled joint ventures first.
China Unicom, which wants to list in Hong Kong and on Nasdaq this year, could face threats of a legal battle with unhappy
investors in now barred joint ventures known as China, China-Foreign (or CCF) projects, analysts said.
''They have to rework the CCFs before they go public,'' said Allan Ng, executive director at the Bank of China's BOCI
Research Ltd in Hong Kong.
China Unicom, struggling to compete with industry giant China Telecom, has more than $1.4 billion in some 40 joint ventures,
designed to skirt curbs on foreign firms operating networks. Its projects link world heavyweights like Sprint (NYSE:FON -
news), France Telecom and Deutsche Telekom (quote from Yahoo! UK & Ireland: DTEG.F).
China has ordered a halt to these projects, cutting off China Unicom's main source of investment funds to expand its network.
Beijing has said these projects would have to be reorganised.
''There could be a showdown before the listing,'' said Duncan Clark, founder of BDA China Ltd, a consulting firm.
Analysts said that the investors now have considerably more leverage in their negotiations on the issue, analysts said.
If that thorny issue can be resolved -- and the stock is not ''aggressively priced'' -- the offer is likely to generate a lot of
investor interest, analysts said.
''There won't be that many offerings in this sector,'' said an analyst. ''There will be interest in this one.''
So far, China Unicom has kept investors guessing about what it will offer to the public but the company will probably look like
a paging firm with potential in mobile telephones.
Beijing has given China Unicom a boost with an injection of China Telecom's paging operations, regrouped as Guoxin Paging.
China Telecom has a Hong Kong-listed unit, China Telecom (Hong Kong) Ltd , which operates mobile phone networks in
China.
Analysts estimate China Unicom could have revenues of some nine billion yuan ($1.08 billion) a year from paging operations,
dwarfing its income from other sectors.
''For the near term, the revenues will be from paging,'' said Philip Mok, analyst at SG Securities in Hong Kong. ''The
government wants to give them something they can rely on.''
China Telecom officials said they had some 41 million paging customers, though that included clients of the Shanghai-listed
Guomai Communications .
China is expected to have about 40 million mobile telephone users by the end of this year. China Unicom says it has about five
percent of the fast-growing market, now dominated by China Telecom.
China Unicom has been authorised to spend seven billion yuan this year to roll out networks using the U.S.-developed mobile
telephone technology called CDMA (code division multiple access).
Industry officials say China Unicom could receive the right to act as a gateway for international direct dialing, which would give
it a big revenue boost, while it also has been cleared as an Internet phone service provider.
''It could also get special treatment in fixed lines,'' said BDA's Clark.
Analysts said the company could also receive some fixed telephone line assets from the Ministry of Railways, one of China
Unicom's founding investors.
($1 equals 8.28 yuan)
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