China Telecom Raises $2.6 Bln in Stock & Bond Sales
By Kenny Hargrove at Bloomberg News
28 October 1999
China Telecom (Hong Kong) Ltd., China's biggest publicly traded company, raised $2.6 billion selling new stock and bonds, as investors clamored for a piece of China's fast-growing mobile telephone market.
China Telecom, which controls cellular telephone networks in three of the country's wealthiest provinces, increased both the equity and debt sale to meet investor demand. Proceeds will be used to pay for mobile networks in three additional provinces.
"China Telecom is a core holding for anyone who wants China exposure," said Mark Headley, who bought some of the new stock for his $100 million Matthews Pacific Tiger Fund. "Cellular phone usage is going to explode."
In the stock portion, China Telecom raised $2 billion through the sale of 644.805 million new shares, after an extra 84.105 million shares were sold under an "overallotment" option, said Goldman Sachs Group Inc., one of sale's managers. The company originally sought to raise $1.65 billion.
The shares were priced at HK$24.10 per share, a discount of about 2.43% to today's closing price on the Hong Kong Stock Exchange, a smaller discount than analysts had expected.
China Telecom also sold $600 million of five-year global notes at a yield 7.943%, or 190 basis points more than five-year U.S. Treasuries. The notes were pitched at a yield as much as 200 basis points more than Treasuries.
The company increased the sale from $500 million after investors placed orders for $2 billion worth of the bonds, according to bankers at Merrill Lynch & Co., which managed the debt offering with Bank of China International Capital Ltd. and Chase Securities Inc.
"China Telecom has a forward looking management and a strong financial profile," said Eden Wong, senior corporate analyst at Banque Paribas in Hong Kong. "Given the enormous potential of China's telecommunications market and the company's strong market position," it's not surprising the bond sale was well received, Wong said.
The notes are rated investment grade at "Baa2" by Moody's Investors Service and "BBB" by Standard & Poor's.
The stock sale creates the largest company in non-Japan Asia with a market capitalization of about $40 billion, said Mark Machin, executive director, equity capital markets, at Goldman.
Included in the sale were American depositary receipts representing 20 underlying shares at a price of $62.03 per unit.
China Telecom's U.S.-traded shares slid 2% to 62 7/16 in midday trading.
U.S. investors bought about half the new stock, Europeans bought about a third and the remainder was purchased from investors in Asia.
Analysts had expected the stock to be priced at a slightly larger discount, perhaps 4 to 5%, below the company's existing shares which closed at HK$24.70, up 5 HK cents.
"It's still an undervalued stock," said Dylan Tinker, regional telecom analyst at Deutsche Bank in Hong Kong. He figures the stock has room to rise because the company's expenses for leased lines and interconnections will decline in coming years, which can boost profits.
At the same time, analysts said the company's subscriber base could grow at about 40% per year for the next few years.
In October 1997, China Telecom raised HK$35 billion ($4.5 billion) in what was then the biggest stock sale from Asia outside Japan.
Bear Stearns Asia Ltd., China International Capital Corp. and Goldman, Sachs arranged the share sale.
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