May 29, 2000
WRAP: China Unicom Steep Shr Offer Price Surprises Mkt
Dow Jones Newswires
HONG KONG -- China Unicom Ltd. surprised the market Monday, pricing its widely awaited share offer at a steeper level than expected.
China Unicom Ltd., China's second largest telecom operator, plans to issue 2.459 billion shares, raising US$3.65 billion to US$4.58 billion in a global share offer. The company kicked off its roadshow in Hong Kong Monday.
China Unicom's shares will be priced between HK$11.50 and HK$14.50 a share, and between US$14.76 and US$18.61 per American Depositary Share, according to the prospectus.
The ADSs will trade as American Depositary Receipts in New York beginning June 21 and the shares will be listed in Hong Kong the following day.
Of the total deal, 30% will be allocated for the Asian tranche, aimed at institutional investors, 30% for the European tranche, 35% for the U.S. tranche and 5% for the Hong Kong initial public offer.
China Unicom is betting on the lure of its rapidly growing market and the millions of consumers not yet armed with a cell phone. And while many investors will be eager to scoop up shares in what's being billed as Hong Kong's hottest initial public offer of the year, some fund managers were surprised by the price of the shares.
"I was hoping for a cheaper price of course," said a fund manager at British fund management company. "I was looking for around HK$13.00," he added.
A sales manager at a European investment bank who asked not to be identified, said at "HK$14.00 or above, it would be a bit too expensive." At that price, "it's not that much cheaper than China Telecom," she added.
China Telecom (Hong Kong) Ltd. (CHL), Unicom's main rival in China's mobile phone market, had one of the most successful IPOs in Hong Kong history, with crowds flooding local banks. The share offer was also fortuitously timed just days before the Asian financial crisis crippled Hong Kong's market in October 1997.
Since its IPO, the value of China Telecom's share price has multiplied, reaching a high of HK$80 earlier this year, compared with its IPO price of HK$11.68.
China Unicom is hoping a similar appetite for China's telecom giants will guide investors two and a half years later.
In China Telecom's Shadow
However, China Unicom is launching its IPO in the shadow of China Telecom and may have to compete for investors already hooked to China Telecom's well-known name and strong profit history, which allows it to command a higher price/earnings multiple.
Traders said China Unicom's surprisingly steep offer price prompted investors to rush back to China Telecom shares Monday as hopes faded for getting China Unicom at a bargain. The shares gained 7.1% to HK$52.50 Monday.
With about CNY839 million in net income, or CNY0.09 per share, for the year ended Dec. 31, 1999, Unicom's share price represents a price/earnings ratio of 147.8-186.4 times its 1999 earnings, according to a banker at one of the banks selling the shares. China Telecom's shares were priced at about 26-28 times earnings when its launched its IPO.
Unicom expects net income to fall to CNY525 million in 2000 under Hong Kong accounting standards, including a CNY1.19 billion charge for dissolving several foreign joint ventures under a government directive earlier this year. Under U.S. accounting standards, it expects to post a loss of no more than CNY678 million, including CNY1.95 billion in one-time charges, according to the prospectus.
Interest Still Likely Strong
However, many analysts say, interest in the shares is expected to be fierce, despite the market's recent weakness as China Unicom has a strong share of the rapidly growing mainland mobile phone market and a strong paging service business. It is also developing fixed-line and Internet businesses.
"I'm not worried that shares won't sell," said a fund manager at Japanese fund management house. "If you look at the external environment, people are staying away from stocks affected by U.S. interest rates. They will park their funds with the less sensitive shares, like Unicom."
Currently, Unicom has about 6.5 million cellular phone subscribers, including 2.3 million subscribers added in the first four months of the year.
China Unicom's executive vice president Shi Cuiming said at the roadshow Monday that the company hopes its cellular phone business will contribute 55% of revenue by 2005. The company last year recorded CNY5.31 billion in revenue from its cellular phone business, or about 37% of the total.
Shi said the company will also focus on expanding its data and Internet services. New business lines set up for long distance, data and Internet businesses will contribute about 30% of revenue by 2005, he said.
Last year, Unicom's long-distance telephony and data businesses registered only CNY79 million in revenue, or just 0.5% of the total.
Unicom plans to spend CNY44 billion in capital expenditure for 2000, about 70% of which will be devoted to expanding its cellular network, Shi said. The company will use the remainder to form an integrated network platform and unbundle a range of Internet services.
For 2000 to 2002, capex will reach CNY100 billion. About 64% will be targeted for cellular market investment, while will continue to dominate the company's expansion plans. It will spend about 33% on fixed network investment over the next three years.
The company will invest about 3% of its total investment in its paging operations in the next three years, the executive said.
China Unicom is the biggest paging operator in China and has a mammoth 59% market share, covering about 4.4 million subscribers.
The company plans to develop its paging business into a wireless data platform, and is prepared to offer more value-added services, including e-mail services, large volume messaging, Internet browsing and stock quotes and trading.
Liu Yunjie, vice president of Unicom, said the company aims to seize a 20% share of the domestic and international long distance market by 2005. It will expand its long-distance services coverage to 220 cities by the end of 2000 from 25 currently.
The company said it's also in talks with unidentified strategic partners. It said the scope for link-ups with a foreign strategic partner will increase with China's accession to the World Trade Organization.
In the longer run, Unicom also plans more acquisitions from its parent, China United Telecommunications Ltd., including the Code Division Multiple Access (CDMA) network, which would give it nationwide network coverage.
China Unicom's roadshow will continue Tuesday in Hong Kong before traveling to Singapore, Europe and the U.S.
The Hong Kong IPO will run from June 13 to June 16, when the underwriters will set the share price.
Morgan Stanley Dean Witter and China International Capital Corp. are lead managers of the deal. Underwriters also include Credit Lyonnais Securities Asia Ltd., ABN Amro, Jardine Fleming Securities and DBS Securities.
The Hong Kong IPO will be managed by BOCI Asia Ltd., HSBC Securities and Jardine Fleming Securities.
Underwriters may claw back portions of the institutional offering for the IPO if demand is strong. They will also have a greenshoe option to increase the deal by up to 15% depending on demand. -By Kirsti Hastings; (852) 2832 2337; kirsti.hastings@dowjones.com with reporting from Cathy Chan and Verna Yu |
