China's dominant cellular phone operator, China Mobile, wants to raise money from mainland investors to help finance expansion. The company - which yesterday announced a profit of 18.02 billion yuan (about HK$16.88 billion) in the year to December 31 - confirmed that it is seeking permission to list China Depositary Receipts (CDRs) in a bid to tap the mainland's huge capital market. CDRs, similar to American Depositary Receipts, are shares of overseas listed companies which are to be listed in China's stock markets, allowing domestic investors to trade foreign-listed companies. Although many red chips - Hong Kong-based and listed companies that are controlled by mainland parents - are banned from tapping the domestic mainland market, they are keen to issue A shares. China Mobile is the first red chip to put forward a plan to the mainland's securities regulator. 'We are in discussions with mainland regulators,' chairman Wang Xiaochu said. 'We hope they will consider our special background of being a Hong Kong-registered company but with all our business operations in China and allow us to issue CDRs.' China Mobile said it would only proceed with the CDR offering if it needed to issue new shares to raise funding to finance the acquisition of the remaining provincial mobile networks from its parent. 'CDRs are just one of our capital-raising means,' Mr Wang said. China Merchants Holdings (International) and Legend Holdings are among the red chips with an interest in raising funds on the mainland. But unlike their H-share counterparts, red chips are unable to participate in the highly liquid and high-valuation A-share market because only companies incorporated in China can issue A shares. H-share companies - mainland incorporated firms with shares issued in Hong Kong - can also raise money on the mainland. Analysts said that if China Mobile's plan works out, it would help pave the way for other Hong Kong companies. As of end-February, China had 6.73 trillion yuan in savings - seen as a strong source of funding for red chips. 'I believe in the long run, after China's entry to the World Trade Organisation and the yuan becomes fully convertible, all Hong Kong companies will be allowed to issue shares in China,' Mr Wang said. However, analysts said there were a lot of hurdles to China Mobile issuing CDRs. In a recent interview, Anthony Neoh, the chief adviser to securities watchdog the China Securities Regulatory Commission, said a CDR offering could not happen soon because it needed amendments to listing rules. China Mobile's net profit last year surged 275.7 per cent to 18.02 billion yuan, including a 1.52 billion yuan provision for the company's entire analogue network equipment. Earnings before interest, tax, depreciation and amortisation (ebitda) were up 73.5 per cent year on year to 37.5 billion yuan, due to robust growth in subscriber numbers. Analysts frequently look at the ebitda for many high-technology and telecommunications companies as a measure of operating performance. Credit Suisse First Boston telecoms analyst NiQ Lai said China Mobile's earnings were in line with analysts' expectations. But it surprised analysts with a higher ebitda margin and lower capital expenditure. China Mobile said its ebitda rose to 57.7 per cent last year, compared with 55.9 per cent in the previous year. Rival China Unicom said its ebitda margin for its mobile business was 55 per cent. China Mobile's subscriber base nearly trebled, to 45.13 million, during the year. Many of them came from networks newly acquired from its parent. China Mobile said it had saved US$1.7 billion capital expenditure last year due to the price drop in telecoms equipment and the delay in rolling out general packet radio service networks. Revenue jumped 68.2 per cent to 64.98 billion yuan. UBS Warburg regional telecoms analyst Dylan Tinker said China Mobile surprised the market by producing higher than expected new subscriber numbers for the first quarter. It added 7.1 million new subscribers in the quarter.
