The 16.8 billion share offering for China Telecom has been delayed for a week as a result of a "technical hitch."
Following two weeks of pre-marketing, roadshows were originally scheduled to start today (Monday), but will now start next Monday instead. Under the revised timetable, presentations are scheduled to kick-off in Tokyo on October 14, but since it is a public holiday in Japan (Sports Day), Hong Kong (Chung Yeung Festival) and the US (Columbus Day), observers believe that the first meetings are now most likely to take place in Singapore.
The revised schedule also means that pricing has been pushed back by a week and will take place in New York on October 30 rather than October 23.
The sudden change of plan has caused confusion among syndicate members who had still been expecting the deal to go live today. However, the decision to delay the deal for a week is said to have come from the Mainland, where officials have been celebrating National Day holidays since October 1 and pre-marketing feedback and a formal pricing range have not yet been rubber stamped through all the official channels.
All concerned emphasize that the delay has nothing to do with poor pre-marketing feedback or the sorry state of the market, which has de-railed the plans of a number of international debt and equity issuers over the past week. Observers say the only event likely to halt the deal now is a war against Iraq and re-affirm the government's commitment to price a deal to sell.
As a result, most expect the $3 billion to $4 billion offering to price at the bottom end of the forthcoming range. Unlike Bank of China, which could play a number of investor constituencies off against each other, China Telecom is almost wholly reliant on the support of institutional investors. With the pricing advantage tipped heavily in investors' favour, some believe the company may need to make additional pricing concessions including an increase in the prospective dividend yield.
At 20% of earnings, the company's dividend is expected to fall just shy of 3%, a level a number of investors believe too low given the free cashflow generated by the fixed line operator.
The price range will be set at a discount to China Mobile, which is still trading around the same levels it was when pre-marketing began on September 23. The stock closed Friday at HK$18.85 compared to HK$18.05 at the beginning of pre-marketing.
At these levels, it is down about 33% on the year, compared to a 20.6% decline in the Hang Seng Index, which hit a one-year low on Thursday, but re-bounded slightly on Friday to break back through the psychological 9,000 barrier to close at 9,051.31.
China Mobile is currently trading on a 2003 P/E ratio of about 11.5 times and the market is expecting China Telecom to price around the six to seven times level, giving an EV/EBITDA ratio of about three times.
Lead managers are CICC, Merrill Lynch and Morgan Stanley. Including a greenshoe, the company is preparing to sell 23% of its issued share capital.
