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China Telecom To Re-Launch Aborted IPO

by Mary Swire, Investors Offshore, Hong Kong

05 November 2002

After China announced what amounts to a U-turn on the controversial increases of IDD inter-connection fees put in place last week to bolster the flotation prospects of China Telecom, the firm said it would re-launch its delayed IPO with revised terms.

The original prospectus set today for an announcement of the offer price, and the company will want to avoid the costs of having to issue a new prospectus if at all possible. Hence the unseemly speed with which the IDD price increases have been revoked - but the only result is to make it abundantly clear to all investors that China Telecom's trading prospects are in thrall to Chinese administrative fiat.

China Telecom pulled its US$3.6bn offering last week after the international segment was undersubscribed by 30%, with the Hong Kong retail segment just scraping through at 1.05 times over-subscribed - a sad contrast to the recent successful Bank of China (Honk Kong) offering.

A revived launch will have to cut the number of shares on offer if it is to have any chance of success, and the attitude of investors is likely to be severely constrained by the regulatory row.

IDD operators had been forced to increase their rates by up to five times after China Telecom told them last week that the Ministry of Information Industry had set a minimum rate of 17 US cents (HK$1.30) per minute for international calls to China from all countries and regions; previously, Hong Kong carriers paid as little as 2 US cents per minute. After Hong Kong carriers fiercely resisted the proposed IDD increases, the mainland authorities have had to back down: although the new charges will remain, the ministry will ensure that mainland carriers pay compensation to their SAR counterparts.

Analysts called it a "face-saving resolution" but it means that China Telecom will be under pressure to justify a price above book value for its shares, while any price below book would require approval from Beijing.

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