China Tower taps Alibaba, ICBC, Hillhouse as cornerstone investors in US$8.7 billion IPO
Listing date scheduled for August 8 in offering that will value the telecom towers operator at up to US$35 billion
China Tower, the world’s largest operator of transmission towers for mobile phone networks, aims to raise as much as HK$68.1 billion (US$8.7 billion) in its initial public offering in Hong Kong, the biggest such sale globally in nearly four years.
The state-owned enterprise plans to sell 43.114 billion shares in a price range of between HK$1.26 and HK$1.58 per share, according to a term sheet obtained by the South China Morning Post.
With 25 per cent of its enlarged capital on offer in the IPO, the company has a valuation of between HK$217.3 billion (US$28 billion) and HK$272.5 billion (US$35 billion).
The offering surpasses Chinese smartphone maker Xiaomi’s fundraising amount to become the world’s largest offering since 2014, when e-commerce giant Alibaba Group raised US$25 billion in its listing. Xiaomi raised US$5.4 billion in its listing after pricing its IPO at the bottom end of the range, valuing the firm at about half of its initial target.
China Tower’s offer is also set to be the largest in Hong Kong since Glencore’s US$10 billion offering in 2011, according to data compiled by Dealogic. If the 15 per cent “greenshoe” or over-allotment option is exercised, the IPO size will increase further to between US$8 billion and US$10 billion.
“The [China Tower] IPO comes at a time when the capital market is volatile and has many uncertainties. But I think it’s the time for them to do it, as China’s 5G commercial roll-out timeline is imminent,” Frank Xu, a Hong Kong-based fund manager at Q Fund Management, said on Monday after China Tower’s investor presentation.
China is in a global race to deploy an advanced 5G mobile network on a large commercial scale by 2020, with the three biggest telecoms service firms having pledged to meet the deadline.
“It’s national strategy. The 5G roll-out requires large capital expenditures and it takes years to plan. If China Tower lists early, the carriers can also plan early for their budget, ” Xu said.
China Tower was formed in 2014 through the merger of the transmission operations of China Mobile, China Unicom and China Telecom. The three mobile carriers together own more than 90 per cent of China Tower, and also contribute more than 99 per cent of its revenue.
The tower company plans to use 60 per cent of IPO proceeds for capital expenditure, including building new towers and upgrading existing ones. Another 30 per cent will be used to repay bank loans, while 10 per cent is for working capital and general corporate purposes.
The management of China Tower told investors at the presentation that it would pay dividends of 50 per cent of net income, without giving a time frame.
“Investors at the roadshow cared very much about the level of its dividend payout, as it is a telecoms infrastructure firm with a simple business model and stable income. People also like companies with stable cash flows or dividends in the current uncertain market,” Xu said.
Still, he said that whether the 50 per cent dividend payout ratio was feasible depended on further clarification by the management.
“[But] I think the response from institutional investors will not be bad. At least some passive funds will be happy to follow such a firm.”
China Tower starts taking orders from institutional investors on Monday, while the public offering tranche will go on the market on Wednesday and run until next Tuesday.
It has already lined up US$1.4235 billion from 10 cornerstone investors, including Alibaba, ICBC, and China National Petroleum Corporation, the parent of PetroChina. Hillhouse Capital is the largest investor among them, having agreed to buy US$400 million shares. Alibaba, owner of the South China Morning Post, has committed US$100 million.
The others are OZ Management, Darsana, Invus, Sinomach, SAIC Motor, and the State-owned Assets Supervision and Administration Commission of Haidian District in Beijing, a district regulator of SOEs in the capital.
The pricing date is expected to be next Wednesday. The stock is expected to start trading on August 8 on the main board of the Hong Kong stock exchange.
Additional reporting by Yujing Liu