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To: djane who wrote (5423)	6/29/1999 10:48:00 AM
From: djane	Read Replies (1) \| Respond to of 29987

China Unicom IPO Gains Momentum But Exit Strategy for Foreign Firms Still Unclear By William J. McMahon ChinaOnline Reporter (6/28/99) China Unicom, the country's number two telecommunications company, is in the midst of planning to list shares on either the New York or Hong Kong Stock Exchange. Last week, word in telecom circles in China was that Morgan Stanley had won the bid to underwrite the listing and that it could take place as early as this fall. China Unicom, established in 1994 to offer competition to the country's telecom monopoly, China Telecom, must resolve one major financial issue before the IPO can go forward: the "zhong-zhong-wai," or China-China-Foreign (CCF), financing scheme. CCF was used initially by China Unicom as a way to raise much-needed capital and, at the same time, skirt regulations barring foreign investment in China's telecommunications sector. The practice was ruled illegal in October 1998. The estimated 43 to 45 foreign investors in China Unicom including multinationals such as Sprint Communications and Motorola--have demanded fair compensation for their investment. China Unicom and its Chinese investors, however, remain undecided on how the compensation will be doled out. Exit Strategy for Zhong-Zhong-Wai China is considering three approaches to resolving the CCF problem, according to telecommunications experts. China Unicom will either: 1.Buy out the foreign investors in cash, giving them a 10-15% return on investment, 2.Treat the investments as "loans," which will be repaid, plus interest, under terms set up by Chinese banks or 3.Give foreign investors the equivalent of their investments in IPO shares. Foreign investors prefer the third option, while the second is favored by domestic investors in China Unicom. "If they do an IPO, they have to share with the foreign investors," said Bob Becker, assistant VP of Business at Sprint. Becker said his company, and the other foreign telecoms, have valid contracts that must be honored or compensated. "To say these projects are illegal is not correct," Becker said. "From that regard, we are in our rights to invest in those projects." Becker said Sprint had invested in a China Unicom's land line venture in the municipality of Tianjin. The Tianjin operations are China Unicom's only land line operations, the rest are mobile communication services and paging services. He also said that the central government has not issued any official statements on CCF, and has not told Sprint that their investment is illegal. "We have [however] been told we can't up the investment." Industry insiders report that China Unicom will be going ahead with the IPO. The company's decision to go through with an overseas listing lead some to believe a solution must have been found to the CCF conundrum. "China Unicom held a beauty contest with several banks," said Doug Maclellan, chairman of Q-East, a telecommunications equipment and services provider with business interests in China Unicom. "Whoever won must have offered a substantive plan to resolve zhong-zhong-wai," Maclellan said. Sources who prefer to remain unnamed believe winner of the "beauty contest" is Morgan Stanley. IPO Strategy China Unicom can list overseas several different ways, depending on which assets it wants to include. The company operates a land line service in Tianjin, several GSM mobile phone networks in major cities (including Beijing, Shanghai and Guangzhou), and in May the company bought Guoxin Paging, the country's largest paging company. Then there is the feather in the cap: China Unicom's sole license to operate the future CDMA network, the U.S.-developed, next-generation, nationwide mobile phone platform. "There's synegry here that can be significant," Maclellan said, describing China Unicom's separate units. China Unicom could list its CDMA units, paging units, or GSM units together, separately, or grouped in some fashion. Maclellan says the CDMA license alone could be worth over US$1 billion. The telephone operator plans to spend RMB 7 bln (US$84.6 mln) this year to add two million lines to its existing network. Next year, the company has said it plans to have 10 million lines in place and to be operating in 160 cities. By 2003, the company aims to capture 30% of the cellular market, with 50 million lines and 35 million subscribers. China Unicom will take over the operations of existing trial CDMA networks in Beijing, Shanghai, Guangzhou and Xi'an that are currently operated by another telecom company, China Great Wall Communications. "Motorola owns part of China Great Wall," said Joseph Locke, Equity Analyst for ABN AMRO Asia in Hong Kong. "Therefore it is now a part owner of China Unicom." Gouxin Paging The paging and GSM operations as a group could be even more valuable, if listed. Guoxin Paging, which plans to seek a domestic listing this year, provides China Unicom with much-needed capital. Made up of dozens of pager operators throughout China, it has 39.5 million subscribers and 60% of the domestic pager market. Guoxin had revenues in the first quarter of this year of RMB 2.3 bln (US$272.1 mln)–three times those of China Unicom for the same period. It has RMB 13 bln (US$1.6 bln) in assets and made a profit of RMB 1.5 bln (US$175.7 mln) last year. China Unicom has plans to invest RMB 23.8 bln (US$280 mln) this year to expand GSM capacity by 5.7 million lines, bringing its total capacity to over 9 million lines and its total number of subscribers to over 4.5 million. If this plateau were reached, the operator would account for 10% of GSM network users in China. But which ever divisions are chosen to list abroad, they will have to attract enough interest to recoup the estimated US$1.4 billion foreign investment in China Unicom, plus the expected 5-10% return that foreign investors demand, Maclellan says. Lester Gesteland also contributed to this report. To contact William J. McMahon or Lester Gesteland: P: (312) 335-8881 F: (312) 335-9299 E: lgesteland@chinaonline.com E: bmcmahon@chinaonline.com Home \| Economic News \| Industry News \| About ChinaOnline Membership Registration \| Products & Services \| Calendar of Events Contact Us \| Statistics \| Reference Materials © ChinaOnline 1999.

To: djane who wrote (5423)	6/29/1999 1:35:00 PM
From: djane	Respond to of 29987

The Wall Street Transcript Publishes Satellite Communications Issue (via LOR thread) Tuesday June 29, 12:38 pm Eastern Time Company Press Release SOURCE: The Wall Street Transcript NEW YORK, June 29 /PRNewswire/ -- Leading analysts examine the Satellite Communications Industry in the latest issue of The Wall Street Transcript. In a definitive review of this sector for investors and industry professionals, it features: 1) In an in-depth roundtable forum on the satellite communications sector (13,000+ words), three prominent analysts: John Coates of Salomon Smith Barney, William Vrattos of Georgica Advisors and Thomas Watts of Merrill Lynch examine commercial satellite launches and recent failures, technology transfer issues, system design concerns, satellite Internet/broadband issues, point-to-multipoint transmissions, supply/demand issues, the regulatory outlook, and investor concerns. Investors have done a poor job differentiating between sectors and firms in regards to risk, Vrattos states, ''There are a few sectors that have outperformed because the fundamentals of those businesses are excellent, and the risk in those businesses has gone down significantly. However, I still think there are sectors of the satellite industry that tend to be grouped together by investors who don't differentiate between different companies or different sectors and instead assume that launch risk or any other risk of a given company is directly comparable to failures or issues at another.'' The problems at Iridium have created an unfair malaise toward the sector, Coates declares, ''It's been more of an execution issue with Iridium (Nasdaq: IRID - news). It's problems that have been company-specific or outside of Iridium's control but specific to Iridium itself, namely the handset availability and getting service providers trained. And this has put pressure on the rest of the industry without regard for the underlying fundamental outlook.'' Liquidity concerns are plaguing the sector following the Iridium difficulties, Watts asserts, ''Iridium is going through a restructuring right now where we could see public investors diluted. Clearly, in the longer run there's the question of whether the equity gets wiped out or not. Just at the end of last week we had ICO (Nasdaq: ICOGF - news) unsuccessfully try to do a financing, so there are reports of that venture folding unless the strategic partners step up. And then Globalstar (Nasdaq: GSTRF - news) still has to raise $600 million by September in an environment where both of its competitors seem to be fouling the water.'' Fears of impending Congressional action have begun to damage U.S. satellite firms, Watts states, ''They're taking foreign satellite manufacturers that clearly are fourth in the market at best and handing a global market to them. The U.S. government has done two things. Already they've transferred approval of satellite exports from the Commerce Department back to the State Department. Then secondly, the current export approval process has already led to the cancellation of the Asia Pacific Mobile Telecom project. That's already more than a $100- million cost to U.S. companies.'' Vrattos concurs that investors' fears of legislative actions are hurting the sector, ''To the extent investors are looking to a Loral (NYSE: LOR - news) or a Hughes (NYSE: GMH - news) to be the backstop financier to an ICO or a Globalstar, every hundred million or so of cash counts. And to the extent that those companies have to take write-offs because of legislation, it does weigh on investors' minds.'' A positive for the satellite sector is the ability to deliver broadband service to remote areas currently unserved by wireline. The Post Office decided they needed a data network connecting most of the post offices in the U.S. Watts states, ''They ran a competitive bid. MCI (Nasdaq: WCOM - news) originally won it, and MCI was going to do frame relay to most of the post offices in the country. When they went out and actually looked at where those post offices were located and how close they were to the MCI fiber backbone, as well as the availability of local frame relay connections from hundreds of local telephone companies, they threw up their hands and went to Gilat (Nasdaq: GILTF - news). So in fact MCI will only do the top 7,000 post offices, the so-called large area offices, and the next 28,000 they have subcontracted to Gilat, because Gilat can do high speed data, they can do it today, they can do it regardless of where the post office is located, and they don't have to go through a local carrier. They just go out and set up a dish.'' Watts has a preference for the DBS sector, ''Currently EchoStar (Nasdaq: DISH - news), as a pure-play in the sector, is one of the most favorable. It's really had a lot of appreciation already. But as we look forward, we think we could lose all of $9 a share this year but roughly break even next year, and in 2001 do $5 a share and 2002 do $12 a share. So the wonderful thing about these largely fixed cost businesses is once they've turned earnings-positive, there's a very dramatic effect. So we continue to like that as one of our favorites. It has all of the reasons we like DBS in there, from your local programming coming on, to potential alliances, to data and Internet services.'' Satellite radio, an emerging sector, requires investors to develop a long- term outlook. Vrattos states, ''In terms of CD Radio (Nasdaq: CDRD - news), this company, I am certain, will have numerous hurdles in terms of financing, in terms of technical challenges, in terms of marketing execution. But it's run by some real entrepreneurs who have been able to raise almost a billion dollars from nothing and made some real progress in creating what looks like will be a business. If you believe in the product and in the industry becoming a reality over the next five to 10 years, and you're willing to hold this for that time period, I think this will be a real home run for any investor with a long time horizon.'' Vrattos cites another example of satellites superior reach to remote and rural areas with an Indonesian telecoms firm, ''Pasifik Satelit Nusantara (Nasdaq: PSNRY - news) is a company in which we are one of four or five institutional investors. It's very much under the radar screen. I think it's one in the mobile satellite sector that could be a real sleeper with upside, given that it is taking an even lower-cost approach than the rest of the companies by doing a GEO service, believing that people who need communication in remote areas need it at an affordable price, first and foremost. So they will have pricing closer to cellular pricing, with handsets closer to cellular size, and will be launching their satellite this year, which obviously has its own risk. But they are fully funded. Lockheed Martin (NYSE: LMT - news) is committed to the project now. And at $7.50 a share, an investor can create its ACeS project, in which PSN owns 30%, at not that much higher a price than at where Lockheed just invested $162 million. So it's an interesting way to ride along with Lockheed at not much higher a cost and to participate in what could be a very exciting project that will actually be launched in the near term.'' 2) A review of management performance at 13 Satellite Communications firms asked market insiders about the ability of management teams to create shareholder value. In a sector where many management teams received harsh reviews, a few CEOs merited praise. A buysider gives accolades to David Margolese, Chairman and CEO of CD Radio, Inc., ''Dave Margolese is a pretty smart guy; he can sell a story without acting like he is. They are going to be in every car in the United States and make billions of dollars. He's so low key about it. This is the best idea and he's not even hyping it.'' Top marks for Charles Egren, Chairman, President and CEO of Echostar Communications, from an industry executive, ''Charlie Ergen has proven to be a real maverick and a dynamic CEO that has built EchoStar from the ground up and the fruits of their strategic moves over the past three or four years are beginning to pay off. He is clearly at the top of the class.'' A money manager continues, ''When you talk about EchoStar you are talking about CEO, Charlie Ergen. He is almost the entire management there. It's a very flat management structure. Ergen likes to pretend he's a country bumpkin, but he's five steps ahead of everybody else. He's playing a chess game and thinks he can see 12 steps ahead and knows he's got checkmate even if nobody else knows he's got checkmate. And for one guy, he's been running circles around the competition lately.'' For information on how to obtain a copy of this issue, see twst.com or call 212-952-7433. This special section is also included in the TECHNOLOGY Sector of TWST Online. The Wall Street Transcript is a premier weekly investment publication interviewing market professionals for serious investors for over 35 years. Now available online to web users at twst.com, TWST Online provides hundreds of free excerpts from our Interviews plus new sector-based online subscriptions. Visit the web site for TWST's free new audio series -- CEO Forums. The Wall Street Transcript does not endorse the views of any interviewee nor does it make stock recommendations. SOURCE: The Wall Street Transcript More Quotes and News: CD Radio Inc (Nasdaq:CDRD - news) Echostar Communications Corp (Nasdaq:DISH - news) General Motors Corp (NYSE:GMH - news) Gilat Satellite Networks Ltd (Nasdaq:GILTF - news) Globalstar Telecommunications Ltd (Nasdaq:GSTRF - news) ICO Global Communications (Holdings) Ltd (Nasdaq:ICOGF - news) Iridium World Communications Ltd (Nasdaq:IRID - news) Lockheed Martin Corp (NYSE:LMT - news) Loral Space & Communications Ltd (NYSE:LOR - news) MCI WorldCom Inc (Nasdaq:WCOM - news) Pasifik Satelit Nusantara PT (Nasdaq:PSNRY - news) Related News Categories: aerospace/defense, banking, publishing, telecom Help Copyright © 1999 PRNewswire. All rights reserved.