China’s ‘Big Three’ network operators inject 214 billion yuan assets into telecoms tower venture

Friday, Oct 16, 2015

The mainland’s “Big Three” telecommunications network operators have agreed to sell and transfer assets worth a combined 214 billion yuan  to their ambitious infrastructure-sharing joint venture, China Tower Corp.

That massive asset infusion is expected to advance the joint venture’s goal of reducing duplication and redundant construction of telecommunications towers and related infrastructure in the world’s second-largest economy, according to separate regulatory filings on Wednesday night by China Mobile, China Unicom and China Telecom.

Analysts said on Wednesday that the transaction would provide a one-time gain for each operator’s earnings this year and serve as a positive catalyst for their valuations.

All three operators are to sell their assets at appraised values “which represent premiums to book values of 20 per cent for China Mobile, 18.1 per cent for Unicom and 17.6 per cent for China Telecom”, Anand Ramachandran, the head of Barclays’ telecommunications, internet and media equity research for Asia, excluding Japan, said in a report.

Barclays estimated a total of 1.5 million towers, along with related assets like plant rooms and ancillary equipment, were involved in the transaction, which will be paid for by China Tower in shares and cash. None of the three operators have disclosed the number of towers they own, so analysts’ estimates have varied.

Once their asset disposals are completed, China Mobile’s stake in China Tower will be at 38 per cent, Unicom’s 28.1 per cent and China Telecom’s 27.9 per cent.

As part of the government-backed initiative, asset-management firm China Reform Holding will inject 9 billion yuan in China Tower and receive a 6 per cent stake. It is a subsidiary of the State-owned Assets Supervision and Administration Commission, an agency directly under the State Council.

China Mobile, Unicom and China Telecom formed a joint venture called China Communications Facilities Services Corp in July last year – it was renamed China Tower in September of that year – to handle all the construction, maintenance and operations of telecommunications network towers and auxiliary infrastructure across the mainland.

“The proportion of asset values was broadly in line with industry expectations,” Bernstein Research senior analyst Chris Lane said on Wednesday.

But he added that the total contributed asset value of 214 billion yuan was below previous projections of 250 billion yuan to 300 billion yuan.

China Mobile, which has the most telecommunications towers on the mainland, contributed assets totaling 116.4 billion yuan. Unicom’s assets were worth 63.2 billion yuan, while those from China Telecom cost US$34.3 billion yuan.

The operators are now negotiating lease fees with China Tower, which are to be set on a “cost plus margin basis” to allow the joint venture to cover its operating costs and earn a fair return, Lane said.

Shares of China Mobile rose 2.74 per cent to close at HK$93.70, while Unicom finished down 2.77 per cent to HK$10.54. China Telecom slid 0.49 per cent to close at HK$4.08.

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