Re: China Unicom IPO
biz.yahoo.com
Monday May 29, 6:59 am Eastern Time
China Unicom's road to an IPO has been fast and bumpy
HONG KONG, May 29 (Reuters) - Investors in China Unicom's initial public offering will be
buying a relatively young state-run telecommunications group experiencing rapid and sometimes
fitful growth which is aiming to compete with goliath China Telecom.
Unicom, which on Monday filed a prospectus for an initial public offering that could total
US$5.26 billion, lags far behind its mainland rival in nearly every category except paging.
Its Guoxin Paging unit, once a part of China Telecom, has a 59 percent share of China's paging
market with 43.5 million subscribers at the end of 1999.
Founded in 1993, the firm now offers long-distance services as well as phone service using Internet protocol, or IP technology, and
provides data services to 50 cities in China. Its fixed-line network won a boost earlier this year when the state Ministry of Railways
merged its telecoms network into China Unicom.
In its prospectus, Unicom reported 4.2 million wireless subscribers at the end of 1999.
But the company told analysts in Hong Kong on Monday during the launch of its IPO road show that it had signed up an additional 2.3
million users in the first four months of the year and was targeting 10 million customers by the end of the year, said an analyst who
attended the meeting.
GROWING PAINS
But while its growth has been rapid, China Unicom has also seen its share of turmoil, including management turnover that has seen
four chairmen in six years. The current chairman is Yang Xianzu who has been in the position since February 1999.
Unicom was also in recent months embroiled in a messy divorce from its so-called China-China-Foreign (CCF) indirect foreign joint
partners, who had pumped US$1.4 billion into the company.
Aimed at skirting bans on foreign ownership in China's telecoms sector, the arrangements were declared ``irregular'' by the Beijing
government in 1998.
China Unicom and its partners, including giants France Telecom and Sprint Corp (NYSE:FON - news), finished unwinding the deals
earlier this year, but only after sometimes-bitter haggling over buyout prices.
The CCF arrangements also contributed to a delay in the IPO, which had been slated for October 1999. Extracting itself from those
deals will cost Unicom 1.95 billion yuan in charges this year, which will result in a loss for fiscal 2000, Unicom said.
Under the deal, the CCF partners will receive warrants exercisable for 374.625 million new Unicom shares six months after the IPO is
completed.
PAGING ARM UNSETTLED
Still to be determined is the fate of a separate China Unicom paging business called Unicom Paging, which has CCF financing
agreements in 35 Chinese cities -- 20 of them with Singapore Science and Technology Co. Ltd and 15 with Hong Kong Lark Telecom
Co Ltd. Those CCF agreements have not yet been unwound, and Unicom did not include the unit in its planned IPO restructuring.
Unicom forecast a net loss of no more than 678 million yuan (US$81 million) for the year ending December 31, 2000 under U.S.
accounting rules, versus a 1999 net profit of 737 million yuan (US$89 million) .
China Unicom said it expects to take a non-recurring charge of 800 million yuan for the termination of the CCF arrangements, as well
a 1.15 billion yuan charge for the cost of warrants that will allow former CCF partners to buy Unicom shares six months after the IPO
is completed.
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