A document filed with the US Securities and Exchange Commission reveals that the Chinese government-owned telecoms venture is planning to sell 1.05 billion shares in a global share offering. The shares will account for 16.2% of the company’s total outstanding after the offer is completed although this was scaled down from the 25% the company had initially intended to offer.
China Netcom has announced plans for a $1.5 billion IPO to fund expansion.
The Beijing based company will offer 470.7 million shares in the US as American depositary receipts and through a private placement in Canada, according to the filing. Individual investors in Hong Kong are entitled to 104.6 million shares and can place their orders from November 4 onwards. China Netcom will price the shares on November 9 in New York.
China Netcom was formed in May 2002 after a government-ordered merger. It incorporates two small datacoms companies, China Netcom and Jitong Network Communications, as well as provincial telephone networks that formerly belonged to China Telecom.
China Netcom mainly operates in six cities and provinces in northern China offering phone and Internet services. It has 77.6 million fixed-line subscribers as of June 30, compared with 69.6 million users as of December 31. The number of broadband subscribers rose 68% 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% in June from 75% at the end of 2001.
China Netcom hopes that the growth of the high-speed Internet market and cash flow from its traditional phone business will lure investors. It also plans to pay between 35% and 40% of its profit as dividends to attract further interest.
However, China Netcom is the last of China’s big four telecom operators to list, and the IPO is likely to face tough market conditions, especially following the recent underwhelming share sales by regional telecom operators such as Hutchison Telecommunications International and mobile carrier StarHub.
Another factor that may concern investors is the high debt levels at China Netcom, which are currently at about CNY58 billion ($7 billion) at the end of June. However, this was reduced by CNY11.9 billion ($1.43 billion) from the end of last year. Investors will be further reassured by the company’s growing revenue – up 12% to CNY32.5 billion ($3.92 billion) for the six months ended June 30.