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China Unicom

China Unicom sees windfall from parent’s mixed-ownership reform deal

PUBLISHED : Wednesday, 23 August, 2017, 4:22pm
UPDATED : Wednesday, 23 August, 2017, 10:55pm

China Unicom, the country’s second-largest mobile network operator, is poised to receive a huge windfall worth HK$88 billion (US$11.25 billion) from the mainland government’s first test case under its ambitious mixed-ownership reform scheme for state-owned enterprises.

The company said in a regulatory filing late on Tuesday that its Shanghai-listed parent, China United Network Communications, has agreed to buy about 6.6 billion new China Unicom shares at HK$13.24 each through its subsidiary Unicom BVI.

That amount represents about 100 per cent of the total funding raised by China United Network from its sale last week of a 35.2 per cent stake to a group of major private mainland investors under its mixed-ownership reform plan, according to Jefferies equity analyst Edison Lee.

The agreed price per share in the Unicom BVI deal represents a 10 per cent premium to China Unicom’s closing price of HK$12.04.

“We see this as a hugely positive gesture that shows the interest of the A-share company and Hong Kong-traded China Unicom are aligned,” Lee said. “This will alleviate market concerns that the share placement was to be done at a discount, causing even more dilution.”

About HK$46.8 billion of the proceeds from China Unicom’s new share subscription will be used for upgrading its 4G mobile network, while HK$23 billion will be for technology validation and launch of 5G network trial programmes, the company said.

In addition, it estimated that HK$15.5 billion will be used for repaying bank loans.

“Following completion of the proposed subscription, the company’s total assets and net assets will increase, and its liabilities-to-assets ratio will decrease,” China Unicom said. “Accordingly, the company will be able to carry out more investment, financing, and research and development activities.

Jeffries’ Lee said since the number of new shares to be issued exceeds the 20 per cent limit under the rules of the Hong Kong stock exchange, China Unicom will require minority shareholders’ approval for this fund-raising.

The company expects that process to be wrapped up by September.

China United Network’s partial privatisation initiative saw internet giants Alibaba Group, Baidu, Tencent Holdings and JD.com take a combined 12.88 per cent shareholding in China Unicom’s controlling shareholder.

China Life Insurance, a state-owned enterprise that is the mainland’s largest life insurer, is that deal’s biggest individual investor, with a 10.22 per cent stake.

“The market is clearly ascribing significant value to the [mixed-ownership reform] transaction, but we still have another key catalyst to come [for China Unicom],” Bernstein Research senior analyst Chris Lane said in a report on Tuesday.

He said the public listing of China Tower Corp is expected either late this year or early next year. It was established by China Mobile, China Unicom and China Telecom in July 2014 to be responsible for all the construction, maintenance and operations of their telecommunications network towers and auxiliary infrastructure across the mainland.