China Unicom stunted by issue plan

China Unicom, China's number two mobile operator, may issue A-shares to finance its CDMA network rollout

In this story: Issue plan to be determined Working around the ban RELATED STORIES, SITES

By Staff and wire reports

HONG KONG, China -- China Unicom's parent company is considering an issue of A-shares to finance the rollout of a new CDMA mobile phone network for its 13.3 million subscribers.

China's number two mobile operator says the assets would consist of part of the parent firm's holding company that owns 77 percent of the Hong Kong and New York-listed China Unicom.

Worries that an A-share listing would hurt Unicom's expected asset injections sent shares down 1.16 percent on Tuesday to HK $8.55.

The stock had surged to a high of HK $9.25 after the company reported a 285 percent increase in net profits to $390.7 million for 2000.

Issue plan to be determined

CDMA, or code division multiple access, is wireless technology patented by U.S.-based Qualcomm. It allows networks to cram more information across limited airwaves than the competing GSM standard which is now predominant in China and Europe.

China Unicom says no decision on a mainland listing had been made and added that the size and timing of such an offering had not been determined.

"People would be buying a fractional interest in 77 percent of Unicom," says a source close to China Unicom.

That way, the source says, there would be no conflict between the interests of mainland and international shareholders.

"The interests of the A-share shareholders would be 100 percent aligned with the international shareholders," the source added.

A-shares are yuan-denominated and available only to mainland Chinese investors.

So-called "red chip" firms such as China Unicom -- which are incorporated overseas but whose assets are mostly in mainland China -- are banned from issuing shares directly in China.

Working around the ban

But the structure that China Unicom says it is considering would appear to work around that ban.

Some company watchers had feared that the already listed China Unicom, which expects to lease CDMA capacity and receive asset injections from its parent at favorable terms, would not enjoy such terms if the parent were listed separately in mainland China.

But China Unicom says the planned CDMA network, as well as existing GSM-standard networks in 18 provinces that are not currently part of the Hong Kong-listed company, would not be included in the firm that might be listed on the mainland.

Financing for the planned CDMA network would also come from debt, cash on hand, and possibly vendor financing, the source says.

State media said in Beijing last week that the cost of building the CDMA network would total $2.4 billion in the first year.

Reuters contributed to this report.

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China Unicom Ltd.

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