China Netcom, the country's second largest telecom carrier, has had a successful initial public offering (IPO) in New York and Hong Kong, with stocks proving popular with investors.
Shares climbed 10 percent in Hong Kong Wednesday.
The fixed-line operator, the last of the four biggest Chinese carriers to enter the capital market, ended yesterday at 9.25 Hong Kong dollars (US$1.19), compared with an offer price of 8.40 Hong Kong dollars (US$1.08). The stock rose as high as 9.50 Hong Kong dollars (US$1.22) yesterday.
The deal, Asia's biggest telecom IPO this year, was priced just above the mid-point of a range of 7.80 Hong Kong dollars (US$1.00) to 8.91 Hong Kong dollars (US$1.14).
China Netcom became one of the most heavily traded counters by far in Hong Kong, which also helped boost all the telecom-related shares.
China Telecom, a rival to China Netcom, jumped 2.75 percent to 2.80 Hong Kong dollars (36 US cents), while Hang Seng heavyweight China Mobile gained 0.63 percent to 24.05 Hong Kong dollars (US$3.09).
China Netcom's big jump came after its American Depositary Shares (ADSs) met with an enthusiastic welcome on their first trading day in New York on Tuesday, closing 14 percent higher.
Their ADSs ended the day in New York at US$24.90 from the IPO price of US$21.82. They rose by as much as 19.4 percent during the session. Each ADS represents 20 common shares.
China Netcom raised US$1.13 billion from its IPO, the third largest this year from China.
Goldman Sachs, Citigroup and China International Capital Corp. underwrote the deal. Observers and fund managers expected the stock to rise 5 to 10 percent on its first day after the IPO.
Netcom's IPO attracted orders worth US$16.2 billion from institutional investors and had its retail book 28 times covered.
Investors were also lured by a promised dividend payout of 35 to 40 percent of its adjusted profit in 2004 and 2005.
"We are happy to see that the market has strong confidence in the Chinese telecom industry," said Edward Tian, executive director and chief operating officer of China Netcom.
China Netcom, the second largest fixed-line operator, is dedicated to becoming an influential regional telecommunications service provider and reaching out to major cities in Asia.
"The timing for China Netcom's IPO is O.K. given the recovery of the global telecom environment and the nation's sustained telecom growth," said Dai Chunrong, an analyst with China Securities.
She believed that getting listed would contribute a lot to help upgrade their management and better compete with rivals.
According to Zhang Chunjiang, board chairman of China Netcom, about 50 percent of the raised funds will be used to expand and upgrade existing telecoms network infrastructure.
Approximately 30 percent will be used to pay back bank loans and 10 percent to develop new applications and services such as IP-based telecommunications services and voice value-added services.
Also, Edward Tian said that China Netcom would cut network maintenance staff from 50 percent of total employees to 25 percent.
Staff would also be transferred to work in the company's sales and marketing department, he said.
It is forecast that China Netcom's 2004 profit will reach 9.15 billion yuan (US$1.1 billion). The revenue will mainly come from its broadband business, personal handset system (PHS) and value-added telecoms services.
By the end of June, China Netcom had recruited more than 77.6 million fixed-line subscribers and 4.2 million broadband users.
(China Daily November 18, 2004)
