Unicom to buy back stake from Telefonica

PUBLISHED : Tuesday, 12 June, 2012, 12:00am
UPDATED : Tuesday, 12 June, 2012, 12:00am


Shares in China Unicom (Hong Kong) rose 6.55 per cent to HK$11.06 in local trading yesterday, after the company said over the weekend it would buy back a 4.56 per cent stake from Spanish telecoms giant Telefonica.

The city's benchmark Hang Seng Index gained 2.4 per cent yesterday.

Analysts believe the deal is a good one for both sides, though it may introduce short-term financial pressure on China Unicom Group, the country's second-largest mobile telephone company and the Hong Kong-traded operator's parent.

China Unicom will pay Euro1.13 billion (HK$10.97 billion), or HK$10.21 apiece, for the 1.07 billion shares, while Telefonica will remain a key shareholder in the firm by holding onto a 5.01 per cent stake.

'It is a good price for China Unicom to purchase the shares,' said Xiang Ligang, an independent industry analyst. 'However, China Unicom will need to pay HK$11 billion in cash.'

Macquarie Securities analyst Lisa Soh rated the deal as neutral for the Hong Kong-listed arm, as it is the parent company that is paying the cash to Telefonica.

Xiang said the telecoms operator did not have deep pockets at the moment, and if funds were spent buying the shares, it might have to be less generous in spending on other projects, for example, to invest in network construction.

However, Huang Meng, of market research firm Analysys International, said money was not really an issue for China Unicom.

'It is a state-owned company and it will be easy for China Unicom to raise funds,' Huang said.

He said Telefonica would hold onto the rest of its shares in China Unicom and co-operation on roaming and other business between the two would continue.

'Unless its debt situation significantly worsens, Telefonica won't want to get rid of its interest in China Unicom,' he said.

In February, Telefonica chief executive Cesar Alierta said he wanted to keep the Unicom stake 'forever' as it was a long-term strategic alliance.

The deal shows the firm is under pressure to reduce its net debt of Euro57.1 billion, at the end of March, to retain investor confidence, analysts say. Besides lowering its stake in China Unicom, Telefonica also plans to sell shares in its German and Latin American businesses as well as assets such as its call centre unit Atento Inversiones & Teleservicios.

Pending regulatory approval, the deal is expected to go through before July 31.