China Unicom buys nine networks
 |
China Unicom's chief rival is the larger China Mobile.
Story Tools
YOUR E-MAIL ALERTS
|
Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.
Or, visit Popular Alerts for suggestions.
|
|
HONG KONG, China (Reuters) -- China's number two mobile phone operator, China Unicom Ltd, said it will buy nine networks from its state-owned parent for HK$3.02 billion ($387 million) in a deal that gives it almost national coverage.
Analysts said the purchase price, which totalled HK$10.6 billion ($1.29 billion) including cash and assumed debt, was in line with expectations.
But they expressed disappointment at the relatively low price Unicom received for the concurrent sale of its paging business to a Shanghai-traded sister company.
That disappointment sparked a sell-off in Unicom shares, which fell 2.92 percent to HK$6.65 by midday Friday.
"The deal will be marginally positive," said DBS Vickers analyst Wallace Cheung. "The value creation through the acquisition of the assets should offset the mildly negative impact on the relatively low valuation of the paging assets."
The acquisition of networks in mostly poorer provinces, to be paid for with cash and completed by year-end, adds about 10 million customers to China Unicom's base, boosting its users by about 13 percent to 87 million.
The deal will give Unicom networks in a total of 30 provinces across China, the world's largest mobile phone market with about 250 million subscribers.
The provincial networks it will buy from parent China United Telecommunications Corp carry net debt of HK$7.6 billion, Unicom said in a statement.
As part of the deal, China Unicom will sell its shrinking paging business to its Shanghai-listed sister firm, also called China Unicom, for HK$2.59 billion. The company said it will book a write-down of 480 million yuan ($58 million) on the sale of the paging business.
China Unicom said the sale of the paging arm and the purchase of nine networks using the GSM mobile standard would boost its 2003 pro forma per share earnings by about 16.8 percent.
UOB Kay Hian trader Steven Leung said the network valuation was largely in line with market expectations.
"Although the deal could improve the company's earnings, it may be offset by a big exceptional loss incurred from the sale of its paging business," he said. "That means there won't be any huge boon to the company's earnings."
China Unicom also runs a newer network using the CDMA standard developed by U.S.-based Qualcomm Inc.
The company's chief rival, China Mobile (Hong Kong) Ltd, the world's largest carrier based on users, also operates a network based on the GSM standard.
China Unicom's GSM network uses cheaper rates than its bigger rival to attract customers, although both Unicom and China Mobile have seen their low-end market under attack from the "Little Smart" system, which does not permit roaming, offered by fixed-line rivals China Telecom Corp and China Netcom.
Analysts had estimated Unicom would pay 11-13 billion yuan for the GSM networks, including assumed debt.
"The consideration is fair. It's not far from what the market expected," said analyst Edward Fung of Kim Eng Securities.
China Unicom said it is paying about 12.8 times forecast earnings this year of HK$234 million for the nine new networks, a discount of about 30 percent to its own price-earnings ratio of about 18.2 times.
DBS Vickers' Cheung said the latest purchases cost Unicom about $130 per subscriber, a steep discount to the $166 it paid in a similar acquisition last year.
Unicom will now have to look to organic growth to boost profits over the medium term, since it has acquired its parent's most valuable assets, he said.
The deal, which had been expected, is the latest in a series of transactions in which big listed Chinese companies buy assets from unlisted parent firms.
Copyright 2003
Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
