good cop/bad cop Part II
China Unicom halts
payments to foreign
partners
BY MATT POTTINGER
BEIJING (Reuters) - China Unicom has said it will
freeze all payments to foreign telecommunications
partners beginning Friday, raising the stakes in its bid
to scrap more than 40 controversial contracts.
In a letter to foreign partners, a copy of which was obtained by Reuters,
Unicom said it ``cannot distribute cash flows generated by the cooperative
projects after October 1.'
Foreign executives said Thursday they believed Unicom was trying to force a
quick settlement of an issue stalling the company's plans for a
multibillion-dollar overseas listing.
But they said the move would only further complicate delicate negotiations,
and they threatened lawsuits.
Foreign companies have poured $1.4 billion into building mobile and fixed
line phone networks for Unicom under a complex financing scheme that
regulators have since declared 'irregular.'
The firms are entitled to payments based on revenues from the networks.
``China Unicom has unilaterally decided to stop doing what it is supposed to
be doing under these contracts,' said one foreign source. ``You'd be
hard-pressed to find a more clear cut breach than that.
``The threat of arbitration or litigation looms larger now certainly than it did a
few days ago,' the source said.
Under pressure from the government, Unicom has been trying for months to
unwind its 40-odd contracts with more than 20 foreign firms, including
Siemens AG, France Telecom SA and Bell Canada International Inc .
To skirt a ban on overseas investment in Chinese telecom services, the
companies packaged their contracts in the form of 'China-China-Foreign'
(CCF) partnerships.
The CCF model allowed foreign companies set up joint ventures with
Chinese firms, which in turn funneled money into Unicom, the country's
number two telephone company.
Provincial and, in some cases, central government offices approved the
CCFs starting in the mid 1990s.
But last year, the Ministry of Information Industry declared CCF ventures
``irregular' and has since ordered Unicom to end the contracts.
Unicom has postponed revenue payments to several of its partners since the
dispute heated up earlier this year, but the letter formalizes such payment
freezes, foreign executives said.
The letter said Unicom would pay what it owed its partners before October 1
and pledged to continue negotiating final settlements.
But deals have been hard to come by. Unicom has offered foreign partners
their original investments back plus a few percent per annum in interest -- the
equivalent of returns on a bank loan, foreign executives have said.
While some partners who have yet to see profits on their investments might
accept the offers, many foreign firms have shot down a deal and demanded
Unicom reimburse them for the market value of the networks they helped
built.
``People call this a $1.4 billion issue, but in fact it's quite a bit bigger than
that,' said the foreign source, who put the actual value of networks at several
times that figure.
``Over 70 percent of the money that was used to build up Unicom came from
foreign investors,' he said.
Unicom is trying to resolve the issue to clear the way for initial public offerings
in Hong Kong and abroad, which foreign executives believe could be worth
as much as $5 billion.
They said the payment freeze would fail to change their negotiating positions
on the issue, and some said they would go over the heads of Unicom and
industry regulators to bring it before top Chinese leaders.
``Jiang Zemin is going to Europe in the second half of October, so there will
be a number of meetings in which this issue is going to be raised,' the
executive said. |
