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China Netcom Group Corp. (Hong Kong) Ltd., controlled by the nation's second-largest fixed-line phone operator, filed with U.S. regulators to raise as much as US$1.5 billion in an initial public offering to fund expansion.
State-owned Netcom plans to sell 1.05 billion shares in a global offering, with shares to start trading in New York on November 16 and in Hong Kong a day later, the Beijing-based company said in a filing to the U.S. Securities and Exchange Commission. The shares will account for 16.2 percent of the company's total outstanding after the offer is completed, the document said.
Netcom, which provides phone and Internet services in six cities and provinces in northern China, is betting growth in the high-speed Internet market and cash flow from its traditional phone business will lure investors. The company probably needs to sell shares at a discount to China Telecom Corp., the nation's No. 1 fixed-line operator, said analyst Edison Lee.
"If the company can sell a growth potential story without jacking up its valuation, there will be demand for the stock,'' said Lee, Hong Kong-based head of telecom research at Credit Suisse First Boston. "Investors will find it attractive if it's around 8 to 9 times its earnings with some dividend yield."
China Telecom, which mainly provides fixed-line business in southern Chinese cities, is trading around 10 times its 2005 forecast profit, Lee said.
Netcom will offer 470.7 million shares in the U.S. as American depositary receipts and through a private placement in Canada, according to the filing. Hong Kong individual investors are entitled to 104.6 million shares and can place their orders from 4 Nov. onwards. China Netcom will price the shares on 9 Nov. in New York, the document said.
Netcom needs more users to boost profit, as new line growth has lagged that of cellular competitors such as China Mobile (Hong Kong) Ltd. in the nation's US$50 billion phone market, the world's biggest by users. China's fixed-line users rose 24 percent to 299 million in July from a year-ago period, compared with a 30 percent increase in cell-phone users, according to government statistics.
The company's revenue rose 12 percent to 32.5 billion yuan (US$3.9 billion) for the six months ended June, reflecting some of the 10.4 billion yuan of connection fees collected before 2001, according to a sale document last month.
The phone company plans to pay between 35 percent and 40 percent of its profit as dividends to draw investors.
China Netcom had 77.6 million fixed-line subscribers as of June 30, compared with 69.6 million users as of Dec. 31. The company had 94.6 percent of the northern markets it operates.
The number of broadband subscribers rose 68 percent to 4.2 million as of June from 2.5 million at the end of 2003. Its share of the high-speed Internet market in the northern regions rose to 93 percent in June from 75 percent at the end of 2001.
China International Capital Corp., Citigroup Inc. and Goldman Sachs Group Inc are arranging the sale.
(Xinhua News Agency October 18, 2004)
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