China Unicom, China's second biggest telecommunications company, rose 9% in debut trading on Hong Kong's stock exchange, after rising 12% on the first day of trading yesterday on the New York Stock Exchange, in China's biggest ever initial public offering.
In Hong Kong, Unicom's shares rose HK$1.38 to HK$16.80 ($2.15) from the price offered to retail investors. Institutional investors were offered the shares at HK$15.58. Yesterday its American depositary shares (ADS) rose to $22.37 from the offer price of $19.99. Each ADS represents 10 Hong Kong shares. The company raised $4.9 billion from its IPO, making it the biggest ever by a Chinese company.
The performance exceeded the gloomy forecasts of some analysts and fund managers. They had predicted before the listing that the price was too high and that potential revenue from China Unicom's cellular business too uncertain to generate much enthusiasm. The company's main business - paging -accounts for more than 50% of its revenue, and growth in that business is slowing. That means it's likely to trade at a discount to rival China Telecom.
"We have a `hold' recommendation on Unicom and a 'buy' on China Telecom, which is lower than the 'strong buy' we had on ChinaTel before and reflects the fact that now there's another option to invest in," says Andrew Loh, telecommunications analyst at UBS Warburg in Hong Kong. "Unicom was priced at a 30% discount to China Telecom's EBITA multiple and I think this discount should remain because China mobile has a lot more spectrum."
Subscriber injection
China Telecom stands to gain more than $8 billion when it injects subscribers currently outside its listed vehicle (China Telecom HK) Ltd. into it. Right now about 60% of China Telecom's subscribers remain outside the listed company, compared with just 20% of China Unicom's subscribers, Loh says. China Unicom is the listed vehicle of China United Telecommunications.
Some retail investors in Hong Kong are hoping China Unicom will track the gains made recently in China Telecom stock, without their having to pay the heavier price for Telecom's shares. "Unicom looks similar to China Telecom but China Telecom is too expensive," says Daniel Chak, 26, a technology graduate who typically invests in blue-chip stocks and bought "a small amount" of Unicom. "I think it's eventually going to be a very big telecoms company."
Unicom plans to spend about HK$31.5 billion to expand the capacity and coverage of its cellular network, and about HK$4.07 billion to expand its fibre-optic transmission backbone network and to develop its internet business. The company has received government approval to begin trials of a third-generation mobile phone technology, known as CDMA2000, developed by Qualcomm of the US. If the trials are successful Unicom may adopt it in two years. In the meantime, it will focus on using GSM technology for its second-generation phone network.
Morgan Stanley Dean Witter and China International Capital managed the sale.
