China Telecom IPO Lacks Sizzle
The largest fixed-line service provider in China saw its stock commence trading on the New York Stock Exchange today, but not before it was forced to relaunch its initial public offering with fewer than half the shares it had originally intended to put on the market (see China Telecom's Big Plans).
In U.S. terms, the company offered 75.6 million American depository receipts at $18.98 a pop, which was nearly the bottom of its range between $18.97 and $21.92. It raised roughly $1.4 billion in the offering.
Shares today dipped $1.13 (5.95%) to $17.85 in afternoon trading. The fact that the company had to slash its offering terms and that the price traded down on the first day signal that the market for telecom IPOs is far from returning to a healthy state.
In celebration of the long-anticipated event, China Telecom Executive Director and Executive Vice President Li Ping will ring the Opening Bell at the NYSE tomorrow.
The company’s stock will begin trading on the Hong Kong Stock Exchange tomorrow.
China Telecom had originally planned on raising nearly $4 billion, but was forced to scale back the size of the IPO when it failed to attract sufficient attention from international investors when it first tried to launch the offering at the end of October.
"They were trying to raise a much larger amount of capital than the market would sustain,” says Network Conceptions LLC analyst Farooq Hussain. “It seems to have been simply a miscalculation… They’ve made the offering pretty attractive on the second go'round.”
Following the carrier’s first attempt at pricing the IPO, speculation had it that the company was attempting to offer the same amount of shares, but at a much lower price. This was not possible, observers say, because Chinese government regulations prohibit state companies from being sold to the public at less than book value. Instead, the company cut the size of its IPO by 55 percent, scaling it down to about $1.4 billion.
Although the company has managed to launch its IPO, Hussain says he expects that interest in the shares will mainly reside in Asia, or among U.S. investors that are already engaged in the Asian market. “This is a very specialized offering,” he says.
China Telecom’s IPO, which was slated to be the largest public offering in Asia this year, now ranks second in the Asian market, following Bank of China (Hong Kong)’s $2.6 billion offering in July.
If the underwriters for the deal, Merrill Lynch & Co. Inc., Morgan Stanley, and China International Capital Corporation Ltd., exercise a 15 percent over-allotment option, China Telecom will have to issue and sell additional shares.
At its offering price, the carrier’s shares held a price-to-earnings ratio of about 10 times its projected 2003 profits.
— Eugénie Larson, Reporter, Light Reading