China Tower, world’s largest mobile phone tower company, to kick off year’s biggest IPO next Wednesday
Beijing-based company aims to raise between US$8 billion and US$10 billion
China Tower, the world’s biggest operator of mobile phone towers, will launch its share sale offer to raise between US$8 billion and US$10 billion next Wednesday, making it the world’s biggest initial public offering so far this year.
The Beijing-based company, which was formed in 2014 through the merger of the transmission operations of China Mobile, China Unicom (Hong Kong) and China Telecom, will launch investor road shows on Monday and its IPO will begin on Wednesday, according to a source familiar with the plan.
“The initial target for China Tower is to raise US$10 billion, but the fundraising size could be smaller. Everything is not definitive given the current market uncertainties,” said another source, adding that the company has been closely watching market sentiment and that changes could be made depending on the response from investors.
International Financing Review reported on Wednesday the mobile phone infrastructure company was planning to raise up to about US$8.8 billion at a valuation of up to US$35 billion, citing people close to the deal. The addition of a standard green shoe option of 15 per cent of the base deal size will bring the proceeds to about US$10 billion, the report said.
The offering will place China Tower ahead of Xiaomi, the world’s fourth-largest smartphone maker, as the world’s biggest IPO this year. Xiaomi raised US$5.4 billion through its listing after the green shoe option was exercised. China Tower’s IPO will also be the fourth-largest flotation in Hong Kong in three decades.
Alibaba Group Holdings, which owns the South China Morning Post , still holds the world record for IPO size with its US$25 billion New York float in 2014.
Some fund managers were a little doubtful about the response to China Tower’s listing in the current market environment.
Alex Wong, director of asset management at Ample Capital, said the IPO came at a time when liquidity is tight in the Chinese market and interest rates are relatively high, adding to the debt burden of the tower operations company.
“The retail market response may not be strong due to a combination of factors, including the unfavourable macro environment, the weakening Chinese yuan and the simple and not so sexy growth story about China Tower itself, as the majority of its revenue is from rental business of telecoms towers,” said Wong.
He added: “The company generates revenue in yuan, but the IPO is in the Hong Kong market. The expected investment returns of investors will also be subject to changes in the exchange rate between the yuan and the US dollar.”
China Tower, in which China Mobile holds a 38 per cent stake, reported 1.9 billion yuan and 76 million yuan in profit, respectively, for 2017 and 2016. In 2015, it suffered a loss of 3.6 billion yuan.
Its revenue reached 68.7 billion yuan by the end of 2017, more than 97 per cent of which came from its tower business. It relies heavily on its three biggest clients – China Mobile, China Telecom and China Unicom. These companies contributed towards 99.8 per cent of China Tower’s revenue last year.
China Tower had liabilities of borrowings worth 144.6 billion at the end of March 2018, with current liabilities worth 96.4 billion yuan and non-current liabilities worth 48.2 billion yuan.
Institutional investors’ response to the IPO may still be “OK”, depending on how China Tower values itself in the end, said Wong. “I think the only concern for them is the IPO pricing, and the response largely depends on whether it’s attractive.”
The offshore yuan rate hit a fresh one-year low on Thursday against the greenback. Hannah Anderson, global market strategist at JPMorgan Asset Management, said she expected more yuan weakness going forward, reflecting a more explicit policy decision from the Chinese authorities.
The China Tower flotation will also boost Hong Kong’s status in its race to retake the global IPO crown. Thanks to Xiaomi, it has edged up to No. 2 from No. 5 globally in terms of fundraising size so far this year, behind only the New York Stock Exchange, according to KPMG.
Xiaomi priced its IPO at HK$17, the low end of its indicative range of HK$17 to HK$22. Its shares have, however, swung wildly since their debut, affected by overall market volatility and a weekend announcement by mainland stock exchanges, which put a temporary halt on accepting Xiaomi into the pool of eligible shares for mainland investors to trade through the stock trading links between Hong Kong and the mainland.
The Hong Kong stock exchange announced on Wednesday it had reached an agreement with its mainland counterparts to discuss the possibility of adding companies with weighted voting rights shares to the trading links, triggering a rebound in Xiaomi stock.
Analysts said China Tower, which does not opt for a weighted voting rights share structure, will not be affected by the new rules.
Hong Kong’s securities regulator and stock exchange have overhauled the city’s listing regulations, allowing companies with weighted voting rights share structures - multiple classes of shares whereby founders exert an outsized control even with minority ownership - to list in the city.