ZTE dodges rule on IPO pension levy
Telecoms equipment supplier will be the first state-owned firm that will not be required to sell shares to pay into fund
When it lists in Hong Kong next week, ZTE Corp will become the first state-owned company to escape having to sell shares to pay the mandatory 10 per cent contribution from an initial public share offering to the National Social Security Fund.
Instead, ZTE's promoter and controlling shareholder Shenzhen Zhongxingxin Telecommunications Equipment plans to fulfil its obligation by paying about $252.1 million to the fund with future dividends from ZTE, a telecommunications equipment supplier.
The move by a company that is already creating a precedent by becoming the first A share to list in Hong Kong, could also pave the way for other state-owned firms to avoid diluting their holdings when seeking a listing.
The Shenzhen-listed company said in its listing prospectus: 'Pursuant to Zhongxingxin's written undertaking to the State-owned Assets Supervision and Administration Commission of the State Council (Sasac), Zhongxingxin will not be selling any state-owned equity interests that it owns in the global offering.'
State-owned China Aerospace Science and Technology Corp controls a 34 per cent stake in Zhongxingxin, making it a state-owned entity.
All state-owned companies when launching initial public offerings or selling additional shares are required to contribute 10 per cent of the issue to the fund, according to the 'Provisional Measures on Administration for Selling-down State-owned Shares and Raising Social Security Funds' promulgated by the State Council in June 2001.
Under the ruling, Zhongxingxin, which holds a 52.9 per cent stake in ZTE, is obliged to sell 12.765 million H shares to raise its contribution to the National Social Security Fund. This would dilute Zhongxingxin's interest in ZTE to 45 per cent.
But instead of making an immediate settlement, ZTE's controlling shareholder will meet its obligation gradually 'out of the dividends that it receives from [ZTE] each year until the total amount has been remitted in full'.
ZTE has paid 464.3 million yuan in dividends to its shareholders over the past three years, representing an average payout ratio of 21.6 per cent.
However, the company said it could not guarantee dividends would be paid in the future.
A spokesman from the Sasac declined to comment on whether ZTE's case would set a precedent for other state-owned entities, claiming that he was unfamiliar with the case. No officials were available from the National Council for Social Security Fund. A spokesman for ZTE declined to comment on why its controlling shareholder was being allowed to get around the social security fund regulation.
In contrast, six minority shareholders of ZTE holding a total of 4.8 per cent state-owned equity interest in the firm, have followed the regulation by selling 1.219 million shares to raise money to make their contributions.
ZTE is selling 141.067 million H shares to overseas investors at a price range of $17.50 to $22.00 per share, aiming to raise between $2.46 billion and $3.1 billion.
