With Dresdner Kleinwort Benson and Lehman Brothers as joint lead managers, the company had been hoping to place 7.1994 million H shares and 16.198 million ADS units under respective price ranges of HK$22 to HK$29 and $11.28 to $14.88. At this level, analysts say that the company was hoping to secure a revenue multiple of 20 times 2000 earnings.
Pricing was scheduled to take place on December 7. However, bankers close to the deal say that roadshows will not now proceed. In one sense, the company is simply the latest to fall foul of market conditions, which are proving particularly hostile to telecommunication plays. Similarly, Taiwan's Chunghwa Telecom, looks increasingly unlikely to move forwards with its $3.6 billion ADR on the advise of lead managers which never wanted to bring the deal before Christmas in the first place.
Bankers point to the recent trading record of China Mobile as further evidence of depressed sentiment. At the time of it $6.6 billion offering on October 31, it was generally agreed that the HK$48 placement price marked the bottom for the company's share price. Once the overhang was removed, a rebound was expected. Since then, however, the stock has been range-bound below the HK$50 level, closing Wednesday at HK$49.90.
But on a more fundamental level, bankers report that investors found Jitong's marketing pitch confusing and ill-defined. And as one analyst puts it, "This is a company which is facing increasingly stiff competition from bigger and better players. There's a feeling that it's been around for a while, but failed to capitalise on its early start and is now in danger of being outgunned by better-financed rivals."
He adds, "Trying to do any telecommunications IPO at the moment would be difficult. But here is a company that's small, not that well known and operating in a dynamic, but uncertain regulatory and operating environment."
Unlike its major domestic competitors, Jitong does not have powerful state-owned backers and it also does not have a profitable track-record. Although it was an early entrant in the field of internet telephony, current revenues fall far short of the funds needed to build the fibre optic network which underlies the company's future ambitions. For the first five months of the year, for example, it reported a loss of $5.9 million on sales of $21.3m. Of this amount, about 73% was generated from the company's internet services, with data communications accounting for the remainder.
One of four internet backbones in China, Jitong was established in 1994 to run the Golden Bridge Information Network and only recently morphed from being an internet service provider to a network operator for voice and data services.
Coming up aggressively behind, China Netcom Corp, established last June, is already being valued as a $2 billion business, to Jitong's $1 billion. And as HSBC analyst David Gibbons comments, "It's an interesting contrast to see how well China Netcom seems to be doing with its second round financing."
The company is believed to have secured $300 million from the sale of 15% of its equity to a group of investors including Goldman Sachs, News Corp, Michael Dell and the Kwok family of Hong Kong's Sun Hung Kai. It is also said to be the first Chinese telecommunications company that will be allowed to have foreign investors sit on its board.
Gibbons concludes, "Netcom has just about everything going for it. It has a very dynamic, Western-oriented management team led by Edward Tian, one of China's best-known software entrepreneurs. It is committed to aggressively rolling-out a fibre optic network and it has very powerful patronage from the Ministry of Railways and SARFT (State Administration of Radio, Film and TV). Jiang Zemin's son even sits on the board."
