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IPO

IPO

China Tower plans to speed up 5G network construction without increasing spending

Ahead of its Hong Kong public offering, the telecoms infrastructure firm looks to step up its appeal to investors

PUBLISHED : Tuesday, 24 July, 2018, 10:53pm
UPDATED : Tuesday, 24 July, 2018, 11:03pm

Chinese telecoms infrastructure firm China Tower plans to speed up the construction of 5G networks and keep costs down by making use of electric power companies’ transmission towers, as it seeks to appeal to investors ahead of its Hong Kong share offering.

At a media briefing on Tuesday, it said it had already signed agreements with China's two major power grid operators to share their transmission towers, with a view to keeping its capital spending at a stable or slightly lower level and boosting cash flow and shareholder value.

“The 5G era is coming in China. There will be a sharp increase in demand for 5G base stations, and it can bring exciting new opportunities for us,” Tong Jilu, chairman and general manager, told the briefing.

“I'm confident our capital expenditure will not increase sharply when the 5G era comes,” he said.

The world's largest telecoms tower operator will kick off the Hong Kong retail offering on Wednesday, seeking to raise as much as US$8.7 billion. It will be the world's biggest share offering since Chinese e-commerce giant Alibaba raised US$25 billion in its listing in New York in 2014.

China Tower, more of 90 per cent of which is owned by China’s top three telecoms carriers – China Mobile, China Telecom and China Unicom, plans to use 60 per cent of the proceeds for capital expenditure, including building new towers and upgrading existing ones, while the rest is for repaying bank loans and working capital purposes.

China plans to implement a 5G network by 2020, but building 5G networks requires large amounts of capital investment and could put further pressure on China Tower’s cash flow. In the years 2015 to 2017, capital expenditure was 229 billion yuan (US$33.7 billion), 64.1 billion yuan, and 43.8 billion yuan respectively. It had borrowings of 144.6 billion yuan at the end of March 2018, with current liabilities of 96.4 billion yuan and non-current liabilities of 48.2 billion yuan.

Tong said the company would pay dividends of no less than 50 per cent of net income to stockholders, although he did not give a time frame.

China Tower reported 1.9 billion yuan in profit for 2017, up from 76 million yuan in 2016. In 2015, it posted 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.

China Mobile, China Telecom and China Unicom contributed 99.8 per cent of China Tower’s revenue last year.

China Tower taps Alibaba, ICBC, Hillhouse as cornerstone investors in US$8.7 billion IPO

China Tower has already lined up US$1.4235 billion in funding from 10 cornerstone investors, including Alibaba Group's Taobao China Holding.

“Our cornerstone investors are good companies from various industries. There is a great potential to work with them in the future,” Tong said. “We'll reveal the plan when there is a need.”

Alibaba owns the South China Morning Post.

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