China Mobile (Hong Kong), China's dominant mobile phone operator, has received almost a 10 times subscription rate for its US$600 million five-year convertible bond. 'We expected the response to be very good due to the small issue size but this is far better than our expectations,' a source close to the deal said. Due to the high subscription rate, China Mobile would increase the bond issue size to US$690 million by exercising the over-allotment option. 'We cannot issue more than that even though there is demand, because the issue size was pre-approved by Beijing. The government does not want the company to have a high foreign currency debt because of the currency risk issue,' the source said. The coupon rate of the convertible bond was fixed at 2.25 per cent yesterday, less than its preliminary offer range of 2.5 per cent to 3 per cent. China Mobile, which was originally scheduled to close the book for subscribing to the bond issue and its share placement on Monday, closed the bond issue offering yesterday due to the better than expected demand. The conversion price of the bond will be set at a premium of 18 per cent to 23 per cent above China Mobile's share placement offer price, which is to be set on Tuesday. Sources said the offer price would be set at a discount of at least 2.5 per cent below China Mobile's Monday closing price, a discount rate that the company offered to investors in the US$1.65 billion share placement last October. China Mobile plans to raise US$600 million from the convertible bond issue and US$4.1 billion from the share placement to finance the cash portion of its US$32.84 billion acquisition of seven provincial networks from its parent China Mobile Communications. Sources said China Mobile's share placement was also warmly received by institutional investors, especially United States telecommunications funds. The share offering - which was arranged by China International Capital Corp, Goldman Sachs and Merrill Lynch - would close on Monday. Daniel Leung, director of credit research at Chase JF, said China Mobile's offerings would be well received because the cellular phone operator had a balanced history of good credit ratings and strong equity growth potential. 'On the credit side, the company has a strong cash flow and low financial leverage. On the equity side, China has a low mobile penetration rate which has left large room for growth,' he said. Most importantly, the high auction cost of third-generation (3G) licences, as in the European market, did not exist in China. 'Investors do not like huge capital spending and China Mobile has not had the huge capital cost of a 3G licence that its European counterparts had,' he said. Shares in China Mobile lifted as much as HK$1.25 to an intra-day high of HK$53.25 before closing at HK$52.25.