US-blacklisted China Telecom files for $4-billion listing in Shanghai

Telco plans to use the funds raised on 5G projects, cloud-network infrastructure, plus research and innovation, and is seeking 'strategic investors' in key growth areas

US-blacklisted China Telecom files for $4-bn listing in Shanghai
China Telecom was delisted in the US because of its links to the military. It now wants to double its number of 5G base stations to 700,000. File photo: AFP.

(ATF) China Telecom has applied for a secondary listing on the Shanghai stock exchange that could raise over $4 billion, just three months after the state-owned carrier was delisted from the New York stock exchange due to alleged military backing.

China Telecom plans to use the funds raised on 5G projects, cloud-network infrastructure, and research and innovation, and is seeking “strategic investors” in key growth areas, according to according to its prospectus posted to the website of the China Securities Regulatory Commission on Wednesday.

China’s second largest telecom operator by revenue plans to issue up to 12.09 billion shares on the Shanghai bourse, which will amount to less than 13% of the company’s total issued share capital, it said.

Based on the value of its Hong Kong-listed stock which was trading at HK$2.76 ($0.36) on Thursday, the carrier could raise about $4.3 billion.

China Telecom may also expand its offering by 15% by exercising an over-allotment “greenshoe” option.

The American Depositary Receipts (ADRs) of China Telecom, China Mobile and China Unicom were delisted from the New York Stock Exchange in January, after former US President Donald Trump banned US investment in companies with alleged military backing.

Index publishers MSCI, FTSE Russell and S&P Dow Jones Indices removed the three Chinese firms from their global benchmarks after they were put on the US blacklist.

A Shanghai listing can help the company “broaden sources of funds, enhance capital strengths and improve risk tolerance,” China Telecom said previously.

5G and cloud network

Proceeds from the share sale, will be used to fund a little over 50% of its investment over the next three years in 5G projects, cloud-network infrastructure, and research and innovation, the company said in the prospectus.

Such investment will amount to 102 billion yuan ($15.8 billion) in the next three years, and 54.4 billion yuan ($8.4 billion) will come out from money raised from the share sale.

It also mentioned plans to introduce “strategic investors” in key areas such as cloud networking, security and digital transformation, and to carry out reorganisation to strengthen the collaboration with the strategic investors.

The company currently has no strategic investor.

Analysts from Guotai Junan International said: “We expect that China Telecom’s listing on the mainland A share market will help it improve its valuation. At the same time, the introduction of strategic investors will help the company expand its ecosystem and vitalise its digitalisation services."

The firm plans to double the number of 5G base stations in use this year to 700,000 from last year’s 380,000 and its 5G network should cover all counties and most towns in the country by the end of the year, chairman Ke Ruiwen said last month.

It will spend 39.7 billion yuan ($6 billion) on developing its 5G infrastructure, similar to the amount spent last year.

China Telecom posted solid results for the first quarter of this year, with revenue jumping 12.7% year-on-year to 106.9 billion yuan ($16.5 billion) and profit rising 10.6% to 6.4 billion yuan ($989 million). 

As of the end of 2020, China Telecom commanded 24.6% of the country’s 5G market with 86.5 million users. It had 351 million mobile subscribers, accounting for a 22% market share.

There are rumours that China Telecom’s larger rival, China Mobile, is also evaluating the latest changes in the capital market and may also seek listing on the A share market.

All three carriers are listed in Hong Kong, and China Unicom is also listed in Shanghai.

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China China Telecom US blacklist military ties Shanghai listing $4-billion listing 5G network Cloud plans