China Unicom

China Unicom’s parent gets go-ahead for mixed-ownership plan

Alibaba and Tencent are expected to lead new private investors and get seats on the board of Shanghai-listed parent of the world’s sixth-largest mobile network operator, with 268.3 million subscribers as of May 31

PUBLISHED : Monday, 17 July, 2017, 6:26pm
UPDATED : Monday, 17 July, 2017, 10:33pm

Internet giants Alibaba Group Holding and Tencent Holdings are expected to be introduced next month as the first major private-sector stakeholders of a state-owned enterprise, following the approval of China United Network Communications’ so-called mixed-ownership reform plan.

The Shanghai-listed parent of China Unicom announced last Friday that its plan has been given the go-ahead by the National Development and Reform Commission, the central economic planning agency under mainland China’s State Council.

“That means the terms, the investors, the size of their equity stake and the amount of investments to be made have all been agreed upon by the various parties involved,” Jefferies equity analyst Edison Lee said on Monday.

“Unicom’s parent would be the first SOE to start undertaking this mixed-ownership reform scheme, while Alibaba and Tencent are expected to become the first domestic private-sector companies to get SOE board seats.”

The first phase of that reform plan will likely be formally unveiled in four weeks, Lee said.

Such a timeline was based on China United Network’s announcement last Friday that trading of its shares would not resume on Monday, but will be suspended for another month.

Lee also pointed out that Unicom needed some time to receive approval from other relevant bodies, such as the Ministry of Industry and Information Technology, the State-owned Assets Supervision and Administration Commission, and the Shanghai Stock Exchange.

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.

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

China United Network, however, denied that report. New York-listed e-commerce powerhouse Alibaba owns the South China Morning Post.

“We believe the potential positive surprise to the market will be that the private investors would own a larger stake in Unicom than the 15 per cent that was previously reported by the media,” Lee said. “A combination of debt and equity will also increase the amount of funds to be raised.”

Wang Xiaochu, the chairman and chief executive at Unicom, said the proceeds to be raised will be used by the operator, 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.

Unicom’s capital spending this year is estimated to come in at 45 billion yuan (US$6.6 billion), down from 72.1 billion yuan last year, as it prepares resources for future 5G mobile network expansion, Wang said.

Unicom has drawn up plans for a partial launch of 5G network services in 2019 and large-scale deployment from 2020.

Chris Lane, a senior analyst at Bernstein Research, said in a report on Monday that there was a high possibility for Unicom and China Telecom to jointly build and share operation of a 5G network, based on their successful cooperation in 4G network deployment.

“Alone, both are subscale,” Lane said. “Together, they should be able to build an urban-focused 5G network with similar economics.”

Tencent’s Hong Kong-listed shares ended 0.1 per cent higher at HK$285 on Monday.