Investors buying China Telecom shares in its upcoming initial public offering (IPO) could receive a dividend of six HK cents to seven HK cents a share, implying a dividend yield of more than 4 per cent, according to sources close to the company. The payment would see China Telecom distribute about HK$5 billion or 30 per cent of its profits for this year, as a sweetener for investors. China Telecom previously intended to distribute 20 per cent of its profits as dividends, with an estimated dividend yield of between 2.5 per cent and 2.7 per cent. Sources close to China Telecom said the giant fixed-line carrier and its underwriting syndicate were seeking ways to sweeten the offer to attract buying interest amid poor stock market sentiment. Details of the offer would be fixed tomorrow. China Telecom plans to sell 16.8 billion H shares and American depositary shares to foreign investors, raising US$3 billion to US$4 billion. A banking source said investors were asking for a higher dividend yield and lower price after seeing China Mobile shares fall sharply in the past month. 'There are two ways of doing it. One is to set a dividend payout ratio, another way is to fix the dividend amount and fund management can calculate the dividend yield based on the offer price,' said a source close to the underwriting syndicate. Fund managers said they would only be interested in buying the shares if they were priced at a discount of between 20 per cent and 30 per cent to China Mobile, and offered an attractive dividend yield. China Mobile has lost 7 per cent of its value in a month, with yesterday's closing price of HK$18.55 representing a prospective price-to-earnings ratio of 11.66 times. Sources said China Telecom would probably price its shares at a prospective earnings multiple of seven to 10 times. One source said the price range would be between HK$1.45 and HK$1.74 per share, while Reuters quoted another source citing a tentative price range of HK$1.48 to HK$1.78. China Telecom is forecasting a full-year profit of at least 16.5 billion yuan (about HK$15.5 billion). But analysts said a 'liberal accounting approach' meant the earnings would include deferred recognition of between six billion yuan and seven billion yuan in up-front connection fees. Authorities removed such fees in July last year.
