Having just successfully raised US$2.6bn for the Bank of China through the sale of its Hong Kong subsidiary last month, the next test comes with the flotation of China Telecom, which is due to take place on November 4th according to the latest news.

Despite terrible stock market conditions, China Telecom is going ahead with its US$3 billion to US$4 billion initial public offering, which will take the form of 'H' shares and will focus largely on Hong Kong and New York.

China Telecom's parent, China Telecom Group, has just transferred a 13% interest in the firm to funds owned by the Guangdong, Zhejiang and Jiangsu provincial governments in return for financial support they provided in constructing the carrier's network. They have undertaken to lock up their shares for three years and to not sell more than 20% of their holdings within any six-month period for two years after that.

Book-building for the issue has already started, and underwriters are said to be under pressure to improve the terms being offered to investors, who are demanding a yield of between 3 and 4% instead of the 2.5% on offer from China Telecom.

China Telecom is considering its options, and may increase the percentage dividend payout rather than reduce the strike price for the shares; it may also pull back some of the offer to tighten the market. Brokers say that nothing has been decided while investor interest is still being tested.

A major road-show by senior executives is set to begin on October 14, with visits planned in the Asia-Pacific area, Europe and the United States.