Chinese fixed-line telephone operator, China Network
Communications Group Corp (CNC), has finally emerged as the largest
single shareholder of Hong Kong phone company PCCW Ltd. This could
end a row over the controversial sale of PCCW's assets.
CNC has signed a deal with Spanish telecoms operator Telefonica,
under which the European firm will buy 8 percent of the issued
share of capital of PCCW. And CNC and Telefonica will transfer all
their interests in PCCW to a special purpose vehicle (SPV), which
could become the single largest shareholder of the Hong Kong
company with a 27.94 percent stake, CNC said in a statement.
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CNC currently controls a 19.94 percent stake in PCCW through its
unit China Netcom Group Corp (Hong Kong) Ltd.
The CNC-Telefonica alliance could clear the way for Netcom to
control the assets of the ailing PCCW, in which Richard Li
Tzar-kai, son of Hong Kong billionaire Li Ka-shing, has a 23
percent stake.
Richard Li was seeking to sell his stake to overseas investors
in a move strongly opposed by the state-owned CNC. But Hong Kong
financier Francis Leung stepped in and agreed in July to pay
US$1.17 billion for the 23 percent controlling stake held by him.
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Leung's move has sparked speculation that Li Ka-shing intervened
to end the row between his son and CNC. Leung has a close
relationship with Li Ka-shing who is dubbed?as?Asia's
richest man.
Two charity foundations controlled by Li Ka-shing will also buy
a 12 percent stake in PCCW, leaving CNC-Telefonica SPV as the
single largest shareholder.
CNC said in the announcement it "is not acting in concert with
any person, except Telefonica, in regard to its shareholding in
PCCW." The firm said it hadn't entered into any agreement or
arrangement with Leung or the foundations controlled by Li
Ka-shing.
"I think it's a win-win deal for all the parties involved," said
Wang Guoping, an analyst with China Galaxy Securities, "and is a
deal?that can be accepted by all parties."
The CNC-Telefonica alliance could avoid a showdown between CNC
and PCCW. CNC has expressed in public that it hoped PCCW's assets
would be controlled by Hong Kong businesses.
Under a deal, Telefonica may have the right to swap its PCCW
shares with CNC for shares in listed China Netcom. Telefonica
already holds a 5 percent stake in China Netcom. The swap could
increase Telefonica's share in China Netcom to 9.9 percent and
increase CNC's share in PCCW to 27.94 percent.?
That could provide Telefonica, the No.2 phone company in Europe,
a short-cut to enter China's lucrative telecoms market.
Under China's commitments to the World Trade Organization,
foreign investors will be allowed to form joint ventures to provide
so-called "basic" telecoms services, mainly voice services, with up
to a 49 percent stake, beginning at the end of this year.
However, forming a company offering basic services involves
immense investment and high risks. "So far the best way for
overseas operators seeking an entry into China is to buy a stake in
listed Chinese carriers," Wang said.
Vodafone, the world's largest mobile operator by sales, has
bought a stake in China Mobile, the world's largest cellular
operator by subscribers.
South Korea's top mobile operator SK Telecom (SKT) in June
signed a deal with China Unicom, under which SKT will buy a stake
in China Unicom Ltd. Unicom will issue US$1 billion in convertible
bonds to SKT. These bonds can be converted by SKT to a 6.6 percent
stake in Unicom in a year.
The Ministry of Information Industry, the country's telecoms
watchdog, said in September that it had received 29 applications
from foreign investors to provide telecoms services in China. None
of them were seeking to provide the basic services. They all hoped
to provide the telecoms value-added services, which require much
less investment.
(China Daily November 14, 2006)