The sale came as the share price has started to turn upward again after falling 8.8% from a record high in mid-November and, according to a source, demand was strong enough to cover the offering in 20 minutes. Given that the shares were offered at a fixed price, the arranger saw no point in accumulating additional demand and the book was closed soon afterwards.
The short bookbuild meant Europe-based investors didnÆt get much of a chance to buy in, but a couple of US investors managed to get orders in before the book closed.
The transaction was handled by Morgan Stanley, but was treated as a secondary share sale and done off the trading desk rather that through the syndicate.
The shares, which accounted for less than 0.01% of the issued share capital and about 1.5 days worth of trading volume, were sold at HK$63.80 apiece, which translated into a 1.2% discount to WednesdayÆs closing price of HK$64.60.
The share price hit a high of HK$69.40 on November 16 and even though it has fallen somewhat since then, the stock is up 76% this year and the selling shareholder clearly saw a good opportunity to raise some cash.
ôThere is a lot of interest in this space at the moment as the 3G license issue keeps coming up,ö notes one observer, referring to current speculation that China may award three 3G licenses before the end of this year.
This speculation has ramped up this week as the annual ITU Telecom World conference is held in Hong Kong and over the past two days, fixed-line operators China Netcom and China Telecom, which are expected to receive two of the licenses, have rallied 15.2% and 11.5% respectively.
The licenses will give the fixed-line operators a new source of growth, while increasing the competition in the wireless space where China Mobile is now battling it out primarily with China Unicom. Consequently, China Mobile has been lagging its fixed-income peers over the past month.
There has also been some recent talk that China Mobile, in its capacity as the countryÆs largest mobile operator, could be given a license based on the homegrown TD-SCDMA standard while licenses based on the international WCDMA standard were to be given to the two newcomers. That approach would require China Mobile to construct an entirely new network rather than build on its current platform, which it can do if the license is based on either of the internationally adopted standards.
Media attending the ITU conference yesterday quoted Dai Zhong, deputy general manager of China Mobile's department of networks, as saying that the operator prefers the WCDMA standard over the homegrown technology as the latter would mean a smaller range of available handsets and higher costs associated with the transition of existing customers to a 3G platform.
In a research note issued yesterday, however, Merrill Lynch analysts argued that China is unlikely to issue any 3G licenses before the middle of 2007 as the TD-SCDMA system will need more testing.
ôWe believe the regulators want expanded TD trials to deepen conviction before
granting a TD license (and) diplomatically, it is more palatable to issue all three licenses at once,ö analysts Wendy Liu and Patrick Russel said in the report.
China Telecom has risen 32% since the beginning of November, while China Netcom is up 24%. China Mobile has gained a mere 2.2% in the same period and China Unicom, which is widely expected to be broken up and absorbed into China Netcom, has risen 7.6%. Year-to-date, however, China Mobile is well ahead of its fixed-line peers thanks to a sharp addition of new subscribers with a 76% gain, which compares with 35.8% for China Telecom and 36.7% for China Netcom.
One fund manager notes increased consumption in ChinaÆs rural areas in the central and northern parts of the country as a key factor for the subscriber growth and says this is likely to provide support for several more years to come.
In the first 10 months this year, China Mobile has added 43.7 million new users for a total subscriber base of 291.7 million. In the same period China Unicom has added 12 million subscribers, bringing the total users on its two networks to 139.8 million.
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