By ALEXA OLESEN
(Virtual China News, June 20) In the run-up to the initial public
offering of China Unicom Wednesday analysts are predicting that because
of the good timing of the offering the stock should do well, with some investors expressing concern about a high offering price.
China Unicom is the second largest integrated telecommunications
company in mainland China. It provides paging, wireless and fixed line
services and its IPO Wednesday will be the largest Asian offering to
date outside of Japan.
The company and their lead underwriter Morgan Stanley Dean Witter set
the preliminary offering price set last Friday at US$19.99, at the high
end if previous estimates.
Many trends contribute to the high valuation of this stock and they
are expected to continue to buoy China Unicom's share price.
"It's going to be favorably received," said Jaymie Sullivan, editor
of the monthly report Emerging Markets Analyst put out by the Bank
Credit Analyst Reseach Group in Montreal, Canada.
Level Playing Field
"With the upswing on NASDAQ, the fact that technology sentiments have
been on upswing, and the excitement because of [China's pending
accession to the] World Trade Organization we are pretty optimisitic
about it," said Sullivan.
The fact that China Unicom is a governement subsidized company in a
highly regulated industry in China is also helping bolster investor
confidence. In order to promote competition the Chinese government has
promised to give favorable rates to China Unicom so that it may have a
more level playing field with which to challenge competitor China
Mobile.
"The Chinese government wants competiton, they want more than one
single telecom player" said William Samuel Rocco, an analyst with
Morningstar.com. "I can't see the Chinese government wanting to let
China Unicom fail."
China's recent overall economic performance is also working in China
Unicom's favor. Michael Kurtz, Asian Strategist with the London based
research company IDEAglobal.com, pointed to positive economic data coming
out of China to explain why the timing for the offering was so
fortuitous. Kurtz cited increased liquidity, greater retail sales and a
higher year-over-year GDP growth for the first quarter 2000 (8.1
percent) as factors contributing to investor confidence in China plays
in general.
"China is Sexy"
"We've finally gotten critical minimum mass on a of number of things
in recent months that all point to domestic macro economic improvement
in China," Kurtz said. "It seems as if all variables are falling into place."
"China is sexy. Telecomms are sexy. There are two ways to invest in
both now," said Morningstar's Rocco, referring to the choice between
China Telecom, the already listed company that now dominates the
industry, and the new China Unicom offering.
Despite the hype there are still concerns about China Unicom and it's
high share price. Potential investors should consider that while China
Unicom hopes to be a major wireless player it has up until now been "a
beeper company," warns Kurtz.
"China Unicom is heavily reliant on its paging business," Kurtz said.
"It is perceived as a cellular [company] but when you look at the breakdown,
most of the revenue and all of the profit comes from paging. So as an
investor what you are doing is buying into the idea that they are going
to be able to make the conversion from a paging to a cellular or
wireless company."
45 Million Subscribers
The company now uses the GSM wireless standard to connect their 7
million mobile subscribers. Their strategy for the near future is to
focus on mobile phone, bandwith for data traffic and the Internet.
Chairman and Chief Executive Yang Xianzu has set the target of 55
million wireless subscribers by the year 2005, and paging revenues will
be used to fuel that growth. China currently has more than 45 million
cellular subscribers.
The strong promise of the company has all but drowned out complaints
by former joint venture companies who accuse China Unicom of breach of
contract. In 1994 China Unicom flouted government bans on foreign
investment in the telecommunications industry and made contracts worth
more than US$1.3 billion with 40 different partners worldwide.
CDMA Indecision
Last year
the Chinese government forced the company to dissolve those agreements.
China Unicom offered to return the investments to the partners with 6%
interest, an amount well below the 30% expected by many.
Most of the companies took the offer. Several companies did not and
are still seeking further compensation. US-based Lark Telecom Services
and Welcom Telecom along with Singapore Technologies are all disputing
the proposed settlement. Singapore Technologies has decided to sue of
breach of contract.
Falling revenues and the company's indecision over whether or not it
will convert its networks to CDMA (code division multiple access), the
more efficient Qualcomm patented network standard which experts believe
will eventually replace GSM, have both failed to diminish enthusiasm for
this chance to get in on the China telecommunications market.
To reach Alexa Olesen email: alexa@virtualchina.net
