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China Unicom

China Unicom to boost capital spending on back of fundraising by parent, says analyst

Shanghai-listed China United Network Communications expected to raise huge investment from new investors, which may include Alibaba and Tencent

PUBLISHED : Monday, 26 June, 2017, 7:01am
UPDATED : Monday, 26 June, 2017, 10:13pm

China Unicom, the world’s sixth-largest mobile network operator by subscribers, looks poised to aggressively raise capital spending this year amid mounting speculation that its parent will soon have well-heeled Alibaba Group Holding and Tencent Holdings as new investors.

“Unicom will likely increase network equipment purchases in the fourth quarter if that fundraising gets completed next quarter,” said Jefferies equity analyst Edison Lee, following a report about the fundraising of Shanghai-listed parent China United Network Communications.

China United Network is one of eight state-owned enterprises participating in the pilot implementation of the government’s so-called mixed-ownership reform programme, which aims to introduce private-sector capital and expertise to improve their efficiency and become more market-driven.

Alibaba and Tencent are expected to lead new investors targeted to inject about US$10 billion into Unicom’s parent, with roughly US$7 billion coming from the issue of new shares, said a Reuters report, citing sources.

China United Network, however, has denied the report.

“It suggested a higher amount than our previously estimated range of 30 billion yuan to 35 billion yuan [US$4.4 billion to US$5.1 billion],” Lee said.

“Unicom’s increased capital spending will start from the fourth quarter, but will be recognised next year. My forecast is 60 billion yuan in capital expenditure for Unicom in 2018, up from 45 billion yuan this year.”

Lee said the first phase of the mixed-ownership reform programme for Unicom’s parent will likely be announced next month.

Wang Xiaochu, the chairman and chief executive at Unicom, said in March that the operator’s capital spending this year would come in at 45 billion yuan, down from 72.1 billion yuan last year, as it prepares resources for future 5G mobile network expansion.

He pointed out that Unicom plans a partial launch of 5G network services in 2019 and large-scale deployment from 2020.

Under the government reform initiative, parent China United Network will issue a number of newly issued and existing A-shares to its new strategic investors. Citing sources, Reuters reported that about 50 billion yuan would be raised through new share issues.

The proceeds raised will be used by Unicom, which had 268.3 million mobile subscribers as of May 31, to further develop its infrastructure and push forward new businesses and online initiatives, such as cloud computing and the internet of things, according to Wang.

Speculation has also swirled that a company under regulator the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT) and a domestic telecommunications network business run by conglomerate Citic Group could be involved in the mixed-ownership plan for Unicom’s parent.

At the annual shareholders meeting of China United Network last month, Wang said Unicom was sorting out its cooperation with SAPPRFT.

Alibaba is the owner of the South China Morning Post.