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China Netcom Group Corp. (Hong Kong) Ltd., controlled by the nation’s second-largest fixed-line operator, cut its debt by 17 percent in the first half, improving its chances of raising US$1.5 billion selling shares.
Netcom, which provides fixed-line and Internet services in six cities and provinces in North China, cut its debt by 11.9 billion yuan (US$1.4 billion) in December to 58 billion yuan by June 30, as it transferred debt to its parent.
The reduction may alleviate investors’ concerns that the company holds excessive debt as it prepares for an initial public offer as soon as October.
Net debt relative to equity fell to 129 percent as of June from 147 percent in December, narrowing the gap with bigger rival China Telecom Corp., which had a 94 percent debt-to-equity ratio in June.
The clean-up of the balance sheet will help allay our fears about high debt,’’ said Louis Wong, who counts China Telecom shares among the US$25 million he manages at Phillip Asset Management in Hong Kong.
The Hong Kong-based company had 55 billion yuan of net debt at the end of June, including 3.1 billion yuan in cash. The funds raised in the initial public offer may help cut its debt ratio to as low as 103 percent. The IPO funds will boost its equity, which was about 43 billion yuan in June.
China Netcom, 86.4 percent-owned by State-owned China Network Communications Group Corp., is betting growth in the mainland’s high-speed Internet market will lure investors from China Telecom, which posted a decline of revenue.
China Netcom’s share of broadband markets in Beijing and Tianjin, Hebei, Henan, Shandong and Liaoning rose to 89 percent at the end of December from 86.5 percent a year earlier. Its share of the domestic long-distance market dropped to 46 percent as of Dec. 31 from 48 percent a year earlier, while its share of the international long distance market was little changed at 60 percent.
(Shenzhen Daily September 17, 2004)
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