China Telecom is pressing ahead with its US$3 billion to US$4 billion initial public offering, despite widespread speculation the deal might be postponed due to bad market conditions. China Telecom shares are expected to start trading in Hong Kong and New York on the week of November 4, a week later than planned, an underwriting syndicate source said. China Mobile, a core telecommunications stock holding for fund managers, yesterday rose 3.1 per cent, or 55 HK cents, to finish at HK$18.90 on widespread rumours the fixed-line giant would delay its offering. Many analysts indicated institutional investors were trimming their positions in the mainland's dominant mobile carrier before China Telecom's expected listing. The country's second listed mobile carrier, China Unicom, saw its share price edge up five HK cents or 1.08 per cent to HK$4.65. But underwriters said China Telecom was determined to go ahead with its 16.8 billion H-share listing plan as it was a key element of its modernisation strategy linked to the country's industry de-regulation. Ahead of the listing, China Telecom's parent, China Telecom Group, has transferred a total 13 per cent interest in the firm to funds owned by Guangdong, Zhejiang and Jiangsu provincial governments as compensation for financial support they provided in constructing the carrier's network. As a result, the group's interest in the listing vehicle will be diluted to 69.5 per cent while the provincial funds will together hold a 10.4 per cent stake. They have undertaken to lock up their shares for three years and to not sell more than 20 per cent of their holdings within any six-month period for two years after that. China Telecom was rumoured to be considering scaling back its share offering by as much as 30 per cent due to insufficient demand from investors. Bankers working on the deal said they were still testing investor interest and no price range for the offer had been set. Another source close to the transaction admitted fund managers were demanding the firm sweeten the terms by increasing the dividend yield on offer. Ben Kwong Man-bun, director of KGI Securities, said: 'There was the impact of the subscription . . . but now investors are looking at the underlying picture and they don't think the offer is so attractive so have to buy back China Mobile. Investors still prefer the stock with the relatively higher growth rates.' 'Most fund managers like the company. But how many orders they place depends on the pricing,' a banker said. Based on the preliminary responses from fund managers, investors are demanding a dividend yield of between 3 per cent and 4 per cent instead of the 2.5 per cent being touted by the firm. China Telecom is planning to pay out 20 per cent of its profit as dividend, but a source said that might increase to 30 per cent. However, a higher dividend payout would mean investors would have to pay a higher price. Senior executives of the giant fixed-line carrier will begin a management roadshow on October 14 to tour major financial cities in the Asia-Pacific, Europe and the United States.
