DJ China Unicom IPO Faces Asset Quality, Tech-Buy Doubts
June 2, 1999
Dow Jones Newswires
By IAN JOHNSON
BEIJING -- The planned $1 billion initial public offering by China United
Telecommunications Co., or Unicom, is running into some hiccups, with
questions being raised over the financial strength of some of its assets and
access to U.S. cellular phone technology, officials at the Ministry of
Information Industries told Dow Jones Newswires.
Unicom recently merged with Guoxin Paging Corp., which will be the main
asset listed - probably on the Hong Kong Stock Exchange, officials say.
But a problem with Guoxin is the paging business is mature and growth
slowing, making it relatively unattractive to investors.
Last year, ministry officials say, Guoxin earned 800 million yuan
($1=CNY8.28) on revenue of CNY3 billion. This year's figures could be
even better, with profits topping CNY1.2 billion, they say. But over the
long term, paging services are expected to level off as more Chinese buy
mobile phones.
That would make Unicom's new mobile phone network - to be built with
Code Division Multiple Access technology - appealing to investors. Some
members of the U.S. Congress, however, say China shouldn't be allowed
to buy CDMA technology, which was developed by Qualcomm Inc.
(QCOM) and is sold under license by other U.S. companies, such as
Motorola Inc. (MOT) and Lucent Technologies Inc. (LU).
Members of Congress say that because CDMA technology encodes the
signal before sending it out over the airwaves, it is harder for intelligence
agencies to eavesdrop.
While most analysts believe the technology will be sold, the uncertainty
makes it hard for investment bankers to draw up a prospectus, according
to a consultant hired by an investment bank. "They don't know exactly
what they'll be selling," he said.
Officials stress that the problems don't mean Unicom's listing is in
jeopardy, saying it has been approved by top officials and is expected to
take place this summer.
Briefing Book for: LU | MOT | QCOM
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June 1, 1999
Business and Finance - Asia
Unicom Mulls Public Share Offering;
IPO Could Open China's Telecom Sector
By KARBY LEGGETT and PETER WONACOTT
Dow Jones Newswires
SHANGHAI, China -- In a move that could widen international access to
China's restricted telecommunications market, China United
Telecommunications Co., or Unicom, is considering a public stock offering
valued at more than $1 billion, company officials said.
State-owned Unicom is the main competitor of the central government's
near-monopoly telecom provider, China Telecom Co., which operates
everything from mobile communications to fixed-line, paging and Internet
services. Last year, China Telecom sold more than $4 billion in stock to
foreign investors -- the largest Chinese stock offering ever -- to finance
expansion of its already-dominant market position.
Guo Huaiming, Unicom's general manager, confirmed that Unicom plans
to sell shares, and said the firm is soliciting advice from foreign investment
bankers on how to proceed with an initial public offering. He declined to
provide details, saying the plan is still in the preliminary stages.
Hong Kong and New York
Other Unicom officials in Beijing said the company hopes to float shares
on both the Hong Kong and New York stock markets, and that the
offering would be one of the largest ever by a Chinese firm. "The more
money we can raise, the better," said a Unicom finance official involved in
the restructuring.
The planned share offering highlights Beijing's attempts to shake up the
tightly controlled domestic telecom sector and guide national
communications costs lower. By introducing competition, the government
hopes that communications costs will become more accessible to Chinese
individuals, many of whom don't have telephones in their homes.
Unicom has been at the heart of those efforts. Earlier this year, Guoxin
Paging Corp. -- once a China Telecom subsidiary -- became part of
Unicom, bringing to its new parent 13 billion yuan ($1.57 billion) in assets.
China Unicom also recently took control of four municipal-level
mobile-phone networks based on Code Division Multiple Access, or
CDMA, the main mobile technology used in the U.S. The four networks --
in Beijing, Tianjin, Shanghai and Guangzhou -- were previously owned by
the People's Liberation Army and China Telecom, which operates the
more prevalent global system for mobile communications, or GSM,
networks.
And last week, China's telecom regulator also approved Unicom to sell
Internet services, another fast-growing market that China Telecom has
dominated.
China Unicom was set up in 1994 by a government-owned company and
a handful of foreign partners. The idea was to allow Unicom to establish
itself, while giving China Telecom enough time to build a dominant market
position capable of fending off the superior technology of foreign firms that
would eventually follow.
But Unicom struggled from the start. Company officials blame the slow
takeoff on government controls regarding what services it can offer and
limits on foreign investment, which Unicom relied on during its initial
stages.
Ban on Cut-Rate Fees
Last week, telecom regulators in central Hubei province ordered Unicom
to stop offering cut-rate fees for new mobile-phone services, even though
prices remain out of reach for the vast majority of Chinese. In Shanghai,
the firm's fixed-line business has struggled to get off the ground despite
repeated government pledges to open that market, officials say.
Those problems have slowed profit growth and limited Unicom's ability to
move out of the mobile-communications sector, which makes up the bulk
of its current operations. Unicom's total sales in the first quarter reached
740 million yuan, up 14%. China Telecom's sales during the same period
surged 22% to 49.19 billion yuan.
The gap between China's only two telecom providers could be narrowed if
Unicom gains access to the capital markets, company officials hope.
Unicom will use proceeds raised from a stock-market listing to pay for the
heavy investments it needs to make in the fixed-line, paging and
mobile-phone sectors if it is to become more competitive and gain a
greater market reach, they say. This year alone, Unicom plans to spend
$845 million on new mobile-phone networks.
A stock offering could also help Unicom extract itself from convoluted
--and technically illegal -- joint ventures. Some foreign companies have
been able to skirt a ban on investing in China's telecom sector by forming
partnerships with Chinese firms that then form ventures with Unicom.
China's telecom regulator recently began enforcing the ban on those
ventures, creating problems for companies linked to Unicom, including
Sprint Corp. of the U.S. and Siemens AG of Germany.
With a listing, some of those foreign companies could be offered shares in
Unicom in exchange for canceling those partnerships, said some
investment bankers.
"China Telecom has a channel to the international capital market," said
Zhou Qiren, a professor at Beijing University's China Center For
Economic Research. "Unicom should also have the right to ask foreign
companies to invest in it." Mr. Zhou, who is familiar with government plans
to restructure the telecom industry, said Unicom's listing "has already been
decided."
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