China Netcom applies for going public
By Zhi Ming (China Daily)
Updated: 2004-07-17 02:18

China Network Communications Group Corp (China Netcom), the country's second-largest fixed-line phone company, is working actively to seek approval from the US Securities and Exchange Commission (SEC) and the Hong Kong Stock Exchange to go public, sources say.

China Netcom is to file its initial public offering (IPO) application to the SEC in a few days to enable the company to float shares in September, said the source who insisted on remaining anonymous.

Meanwhile, the firm is also planning to apply to HK Stock Exchange soon.

The company plans to sell stock worth as much as US$1.5 billion to upgrade its fixed-line networks so as to enhance its competitiveness in the tense Chinese market.

A company spokesman admitted that a shareholding company was established last Friday to prepare for its IPO.

China Network Shareholding Company will be a combination of China Netcom's three subsidiaries -- Netcom North, Netcom South and Netcom International.

China Netcom, one of the four major domestic telecom operators which is not listed on the capital market, originally planned to go public in Hong Kong earlier this month.

However, it was delayed partly because of additional regulatory procedures China Netcom needed to go through amid ongoing talks with PCCW Ltd, analysts say.

PCCW first said that it is to sell a stake in its phone business, Hong Kong's largest, to China Netcom. And China Netcom hoped to combine PCCW's Hong Kong network, with its own network in South China's Guangdong province.

"China Netcom's potential stake purchase in the fixed-line business may boost investors' interest in the share sale," said Dai Chunrong, an analyst with China Securities.

"Nevertheless, to work out a tempting listing plan and demonstrate the selling points to potential investors are the most important things for the company," she suggested.

"In the meantime, to enhance investors' recognition is of pivotal importance for the company," she added.

As the second largest fixed-line operator, China Netcom currently does not have many differentiated services compared to China Telecom, the number one firm in the Chinese market.

Figures from the Ministry of Information Industry indicated that fixed-line telephone users reached 290 million by the end of May. China Telecom commands more than half of the market share.

"To go to the capital market will be very conducive to the company to raise funds for expansion," said Chen Jinqiao, director of the China Academy of Telecommunications Research under the Ministry of Information Industry (MII).

But he said China Netcom is unlikely to become listed by September.

"What investors are concerned about is the company's business performance instead," he said.

The company should go public after hammering out an effective business model and improving its performance, Chen said.

Compared to other telecom operators, there are not many selling points for China Netcom.

China Netcom has total assets of 240 billion yuan (US$28.9 billion) with a 58 per cent debt/asset ratio.

The right timing would more likely come at the end of this year or early next year, he predicted.

According to Zhang Chunjiang, general manager of China Netcom, one of the tasks on his agenda is to make China Netcom listed in the capital market this year.

And the listed company is supposed to purchase assets from its parent company step by step and all the purchase will be finished before the end of 2006.

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