China taps nation’s who’s who of technology to anchor ownership shakeup at Unicom’s parent
A consortium of 14 strategic investors will acquire a combined 35.2 per cent stake in Shanghai-listed China United Network Communications, Unicom’s controlling shareholder, for about 78 billion yuan
China’s government has tapped 14 strategic investors, including a who’s who of the country’s largest technology companies and private enterprises, to anchor an ambitious plan to shake up the ownership structure of the second-biggest domestic telecommunications network operator.
China United Network Communications, the Shanghai-based holding company of Hong Kong-traded China Unicom, will sell a 35.2 per cent stake for about 78 billion yuan (US$11.7 billion) to a consortium of private-sector investors, according to Unicom chairman and chief executive Wang Xiaochu. The transaction is scheduled to close by the end of this year.
“This represents a significant strategic opportunity in Unicom’s history,” said Wang during a press conference on Wednesday in Hong Kong.
The transaction marks the first case of the Chinese government’s so-called mixed-ownership programme, which aims to introduce private-sector vigour and expertise, fresh capital and innovation to the country's state-owned enterprises.
The consortium of investors include Chinese technology giants Alibaba Group Holding, Baidu, Tencent Holdings and JD.com.
Alibaba, owner of the South China Morning Post, is the operator of the world’s largest online shopping platforms. Baidu runs China’s dominant internet search engine. Tencent produces China’s most popular online games and runs the country’s dominant social media network, while JD.com is an online retail giant.
Unicom plans to collaborate with those four companies in areas that include retail, payment and internet finance, content aggregation, so-called big data and the internet of things, Wang said.
The other investors include nationwide retailer Suning Holdings, diversified technology conglomerate Kuang-Chi Group, ride-sharing market leader Didi Chuxing, data centre services provider Wangsu Science & Technology, business software provider Yonyou, China Life Insurance Company, railway rolling stock manufacturer CRRC Corp and the Qianhai Fund of Funds.
“We see these companies’ participation as a positive development because Unicom will be able to leverage the strength of each strategic investor to further develop its business,” Jefferies equity analyst Edison Lee said. “The amount of funds raised is also larger than expected, which will give Unicom more firepower for its future investments.”
The proceeds of the investment will be used to enhance Unicom’s 4G mobile capability, conduct 5G technical trials and build test networks, and invest in innovative businesses, Wang said.
Known as the latest advance in mobile communications, 5G is expected to support 1 million connected devices per square kilometre; 1 millisecond latency, or the amount of time a packet of data takes to get from one point to another; higher energy and spectral efficiency; and up to 20 gigabits per second of peak data download rate for each cell site.
China United Network is one of eight state-owned enterprises taking part in the central government’s pilot implementation of its mixed-ownership reform programme.
The Unicom A-share company’s reform scheme, which was given the go-ahead last month by the National Development and Reform Commission, involves the sale of 9 billion new shares as well as 1.9 billion existing shares. Key employees of the company will be given 850 million restrictive shares of China United Network at 3.79 yuan per share, said Wang, citing a proposal.
The ownership shakeup comes on the heels of a 68.9 per cent jump in Unicom’s first-half net profit to 2.4 billion yuan, up from 1.4 billion yuan in the same period last year, as the company effectively cut its operating expenses.
Earnings before interest, tax, depreciation and amortisation – representing net cash flows from the company’s businesses – advanced 5.5 per cent to 43.5 billion yuan in the six months ended June 30 from 41.3 billion yuan a year earlier.
Total operating revenue, however, was down 1.5 per cent to 138.2 billion yuan from 140.2 billion yuan a year ago.
That spoiled the operator's 3.2 per cent year-on-year gain in service revenue to 124.1 billion yuan.
“We believe Unicom is on the right track to achieve its target of earnings recovery in 2017,” said Nomura analyst Joel Ying. “Together with potential benefits from the mixed-ownership reform, we expect China Unicom to further improve investors’ return in the long term.”
Unicom’s shares closed unchanged at HK$11.92 in Hong Kong on Tuesday before trading was halted. Its shares will resume trading on Thursday.
On the Shanghai bourse, shares of China United Network last traded at 7.47 yuan on March 31, before trading was suspended pending the announcement of its mixed-ownership restructuring.