*Foreign firms threaten China Unicom IPO
Monday July 26, 6:22 am Eastern Time
By Matt Pottinger
BEIJING, July 26 (Reuters) - Foreign telecommunications firms said on Monday they
were threatening to undermine a market listing by China Unicom unless it paid them
hundreds of millions of dollars in frozen investments and potential revenues.
''Lots of us are preparing for litigation on this,'' said a Beijing-based executive whose company has money tied up in
now-defunct joint ventures with Unicom, China's number two telecommunications service provider.
Asked whether his firm would lodge a complaint with the U.S. Securities and Exchange Commission, which must approve
initial public offerings in the United States, he said: ''You bet.''
China Unicom announced this month it was planning to issue shares for listings in Hong Kong and overseas in October.
Market sources said Unicom -- whose officials put the initial public offer at more than $1 billion, making it one of China's
biggest -- was hoping to list on the U.S. Nasdaq.
But several of more than 20 foreign and Hong Kong firms which invested about $1.4 billion in China Unicom in the
mid-1990s said they were irate.
The problem centres on a legal loophole that allowed firms including Sprint (NYSE:FON - news), Deutsche Telekom (quote
from Yahoo! UK & Ireland: DTEG.F), France Telecom and Bell Canada (Toronto:BI.TO - news) to pour money indirectly into
Unicom and skirt an official prohibition on foreign investment in the telecoms sector.
China closed the loophole last year and began enforcing a ban on the existing joint-venture contracts in March, barring
Unicom from sharing revenues with its foreign partners or repaying them.
Over the past few weeks, Morgan Stanley Dean Witter, which is underwriting Unicom's IPO, has approached many of the
firms offering settlements, the foreign executives said.
But some said the offers, which included full reimbursement of original investments plus a few percent in interest, fell far short
of what they deemed acceptable.
''I believe they have approached almost everybody. I don't think they've met with a lot of warm responses,'' one executive
said.
In addition to the repayment of initial investments, the executives say Unicom should foot the bill for marketing costs,
maintenance of the joint ventures and lost potential revenues.
''We're providing a long-term investment for 15 or 20 years,'' the executive said.
''Now we're asked to leave in three years. Where are the earnings? Even if they pay 100 percent or 200 percent on the
cost, it's not going to cover it,'' he said.
Morgan Stanley said it was forbidden by securities laws from discussing the matter.
An industry analyst who asked not to be identified said the flap would probably postpone Unicom's share offering.
With European, Hong Kong, Japanese and U.S. firms in the imbroglio, there were few stock markets for Unicom to go to
for a listing, he said.
''At a minimum it will be postponed, because companies will go to the Securities and Exchange Commission,'' he said.
''Just say the word 'litigation' and you've got a dead IPO,'' he said.
More Quotes
and News:
Bell Canada International Inc (Toronto:BI.TO - news)
Sprint Corp (NYSE:FON - news)
Related News Categories: Canadian Market News, IPOs, US Market News
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