China Mobile will pay Rmb39.8 billion ($5.8 billion) for a 20% stake in Shanghai Pudong Development Bank (SPDB) as the two firms aim to tap into the market for mobile payments.
The deal is intended to enable the two parties to build mobile finance and mobile e-commerce businesses encompassing mobile phone payments, mobile bank cards and mobile funds transfers.
Hong Kong-listed China Mobile is buying 2.21 billion new shares in SPDB at Rmb18.03 per share. The price represents a discount of 13.1% to SPDB's closing price on the Shanghai Stock Exchange on February 25, the last trading day before the parties entered a share subscription agreement, and a discount of 10% to the average trading price over the last 20 trading days up to the day SPDB's board approved the deal. It is at a 120% premium to the net asset value of SPDB as of September 30 last year.
Chinese state-owned enterprise China Mobile is a telecommunications firm offering mobile services through a network covering 98% of the country. It will route the investment through a wholly owned subsidiary, Guangdong Mobile, which provides mobile services in Guangdong province. China Mobile was advised on the investment by China International Capital Corporation.
China Mobile will become the second-largest shareholder in SPDB after Shanghai International Group. As long as China Mobile owns 20% of SPDB, it has the right to nominate two non-independent directors and one independent director to the board.
SPDB is a joint-stock commercial bank with its headquarters in Shanghai. It has 33 branches and 565 outlets across China, as well as five subsidiaries in China and a representative office in Hong Kong. The deal, which involves the issue of new shares, will allow SPDB to recapitalise.
In a research report issued yesterday, Citi reiterated its buy recommendation on China Mobile. In the long-term, Citi expects China Mobile to be the strongest operator in China's three-player telecom market, based on its diversified growth profile and the operational flexibility China Mobile derives from its size. Citi's concerns are the "excessive competition and heavy-handed government intervention in the telecom market, with asymmetric regulations helping smaller/weaker telecom operators at China Mobile's expense".
Mobile companies and financial services firms are forging innovative partnerships to leverage each other's strengths and grow their businesses. In December last year SK Telecom, Korea's largest mobile phone company, bought 49% of Hana Financial group's credit card unit in the first instance of an equity partnership between a credit card company and a telecom firm.
China Mobile's share price gained 1.6% to HK$75.35 on the Hong Kong exchange yesterday, while in Shanghai, SPDB rose 2.7% to Rmb21.70 as it resumed trading after being suspended since February 26.
