China Telecom in talks to buy networks from parent
By Tony Munroe
HONG KONG, June 26 (Reuters) - China Telecom (Hong Kong) Ltd <0941.HK> on Monday said it was in preliminary talks to buy from its parent mobile phone networks analysts said could be worth up to US$40 billion.
China Telecom, China's leading wireless firm, provided few details in its announcement other than to say that it may need to raise further funds to buy the networks in seven provinces and cities, including Beijing and Shanghai.
While the deal could value the assets at more than US$40 billion, analysts expect China Telecom's mainland parent China Mobile Communications to retain a 75 percent stake in the networks, thus China Telecom would only have to raise one-quarter of the acquisition price for the assets.
The potential acquisitions, widely expected in the market, are seen as a move to strengthen China Telecom's position as China's largest mobile phone firm and to bolster the country's home-grown telecoms industry before it is opened to foreign competition once China joins the World Trade Organisation (WTO).
"Such acquisitions, if implemented, may require fund raising by the company, which may take the form of debt financing, equity financing or other means of financing," the company, soon to be renamed China Mobile (Hong Kong) Ltd, said in a statement.
VALUE VARIABLE
Given the paucity of details available from the company, analysts were left to speculate as to the value of the proposed acquisitions.
Depending on how deeply the networks are discounted, analysts said the roughly 12 million subscriber accounts under consideration for purchase could be valued at US$2,000 or $3,000 apiece, or US$36 billion at the high end.
Some analysts said they expected the number of subscribers in the seven provinces to reach about 16 million by year-end.
"It isn't hard to see US$40 billion," said analyst David Gibbons of HSBC Securities in Hong Kong.
In October, China Telecom bought three networks from its parent for US$1,900 per subscriber at the time, or about $1,500 per user at year-end.
Eric Ikauniks, telecoms analyst at Jardine Fleming, said a per-subscriber price of roughly $2,000 based on the number of subscribers at the end of this year would value the deal at $US32 billion.
Financing is expected to include a substantial share placement with the parent firm, as well as a further offering of public shares and debt financing.
Ikauniks noted that with China's foreign ownership rules limiting foreign ownership at 25 percent, the newly issued public equity could total $US8 billion based on the hypothetical US$32 billion figure.
"The theory behind the acquisitions is positive -- you buy from your parent at about half what the market is valuing yourself," he said. "Of course, everything depends on pricing."
China Telecom recently said it had 20.52 million subscribers as of the end of May, adding roughly one million a month during the first five months of the year. Based on China Telecom's recent share price, investors valued its subscribers at roughly US$5,500 apiece, one analyst noted.
AGGRESSIVE ACQUIRER
China Telecom said on Monday it was in talks with its parent China Mobile Communications Corp to purchase mobile telephone operations in China's Beijing, Tianjin, Shanghai, Liaoning, Hebei, Shandong and Guangxi provinces and cities.
China Telecom's turf already consists of six of China's wealthiest coastal provinces, and the additional properties would extend its wireless presence across the nation's most prosperous regions.
While investors had expected China Telecom to buy further assets from its parent, some company watchers had not expected the company to move so quickly.
"I'm surprised that they've done it in such an ambitious manner," said Richard Ferguson of Nomura International. "the fact that they're going for seven (provinces) is fairly significant."
Ferguson said the Beijing government wants to have two wireless "colossi" -- China Telecom and recently-listed China Unicom <0762.HK> -- in place before foreign competitors are allowed into the world's third-largest mobile phone market.
"It's about getting a critical mass carrier in place well in advance of foreigners coming in," Ferguson said.
No contractual terms or purchase price had been agreed and any deal would be subject to approval from regulatory authorities and independent shareholders, China Telecom said.
The news sent shares in China Telecom surging on Monday by HK$2.50, or 3.91 percent, to HK$66.75.
(US$ = HK$7.79)
07:08 06-26-00
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