CHINA UNICOM :Friday February 4, 5:49 am Eastern Time
China Unicom settles foreign contracts, eyes IPO
By Matt Pottinger
BEIJING, Feb 4 (Reuters) - After more than a year of bitter wrangling, China Unicom has resolved contract disputes with several key foreign investors, the investors said on Friday.
The pacts should help pave the way for a multi-billion dollar stock listing and mark a big step toward ending the battle over so-called China-China-Foreign (CCF) joint ventures -- a shaky financing scheme which allowed foreign companies to build and hold stakes in networks operated by the number two state carrier.
Two dozen foreign companies had used the scheme to pour more than $1.4 billion into joint ventures with China Unicom since the mid-1990s in spite of a ban on overseas investment in the sector.
The Chinese government in late 1998 declared the CCF model unacceptable, and ordered China Unicom -- formally known as China United Telecommunications Corp -- to unwind the joint ventures.
China Unicom has since been locked in a tough standoff with foreign investors over compensation.
FIVE BILLION DOLLAR IPO
``We have reached a final agreement,' Felix Li, vice president of Bell Canada International, said of the recent pact dissolving its mobile phone joint ventures in coastal Shandong province.
CCT Telecom Holdings Ltd of Hong Kong also reached an agreement over its ventures in Shanghai and Shandong, a state newspaper reported, and France Telecom said it was in final negotiations over its Guangdong province networks.
While the agreements cover only a fraction of CCF joint ventures, numbered at more than 40, they comprise some of the most lucrative and fastest growing mobile phone markets in China.
Ownership of those networks would be crucial for China Unicom to reach its three to five billion dollar target for an initial public offering, scheduled for Hong Kong and possibly the United States, analysts have said.
A source close to China Unicom said last month the listing would come in April or May if key CCF disputes were resolved.
TAKE THE MONEY AND RUN
Li declined to reveal details of the Bell Canada pact, citing a non-disclosure agreement with China Unicom.
Foreign companies have argued for settlements that reflected the current or potential values of the networks they helped build, while China Unicom treated the funds like bank loans, offering to return investments plus a few percent in interest.
CCT, one of the biggest CCF investors, would be given 800 million yuan to 1.0 billion yuan ($97 million-$120 million) in cash plus the right to buy stock at the IPO, the China Business Times said. CCT had originally invested 600 million yuan.
One foreign source close to CCF negotiations said investors were ending up with far less than they had fought for.
``Unicom has had some of the cheapest capital in the world to help them roll things out,' he said.
``It's really a war of attrition, and companies that were talking a big game are ready to take what money they can and get out.'
UNICOM FLEXES ITS MUSCLES
The planned listing, which would constitute one of China's biggest ever, would help Unicom finance ambitious plans to step out of the shadow its main rival, state giant China Telecom.
On Tuesday the company announced it had secured CDMA patent rights from Qualcomm Inc (NasdaqNM:QCOM - news) allowing it to build a national mobile phone network using the advanced U.S. technology.
Many foreign telecoms firms said they would swallow hard feelings over the CCF flap and seek opportunities in China after it enters the World Trade Organisation.
Under a pact signed with the Washington last November, China pledged to gradually allow up to 50 percent foreign ownership in telecom operations after accession to the world body.
``Being such a big market, I would be surprised if somebody said 'I won't come back',' Bell Canada's Li said.
``But they'll come back with a more realistic view of China.'
($1 equals 8.278 Yuan)
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