Citic Telecom plans rights issue to fund Macau acquisition

The Hong Kong-listed telecom services provider seeks to raise at least $235 million from the fully-underwritten deal.
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CTM operates mobile, fixed-line and broadband services in Macau
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<div style="text-align: left;"> CTM operates mobile, fixed-line and broadband services in Macau </div>

Citic Telecom International, a telecommunications services provider that is majority-owned by China’s Citic group, plans to raise at least HK$1.82 billion ($235 million) from a rights issue. The company has set the subscription price at a 26.8% discount to Friday’s close.

Citic Telecom said in an announcement yesterday that it will use the proceeds from the offering to finance part of its acquisition of Companhia de Telecomunicacoes de Macau (CTM), Macau’s only full-service telecoms company.

The company already owns a 20% stake in CTM, and said in January that it is paying $1.16 billion to buy Cable & Wireless Communications’ (CWC) 51% controlling stake and Portugal Telecom’s 28% holding. The Macau government owns the remaining 1% through Macau Post.

Citic Telecom has obtained the necessary consents and approvals from its shareholders, the shareholders of CWC and the Chinese government, and is now awaiting approval from the Macau government, it said yesterday. It expects the acquisition will be completed in or before the third quarter this year.

According to the announcement, Citic Telecom intends to use the net proceeds from the rights issue to finance part of the acquisition, reducing the amount to be drawn down under available loan facilities. Part of the money will also go towards general working capital. The company noted that it has already obtained commitments for short- and long-term loan facilities from a group of banks and other financial institutions to cover all the funding requirements in relation to the acquisition.

In February, a wholly owned subsidiary of Citic Telecom issued $450 million of 6.1% guaranteed bonds due 2025. The net proceeds from that deal will also be used to finance the acquisitions.

Citic Telecom is a telecom services provider specialising in hub-based services. Its four main types of business are voice services, SMS services, mobile value-added services and data services. Its key markets are China and Hong Kong, but it is expanding its business to international telecoms operators. Meanwhile, CTM operates mobile, fixed-line and broadband services in Macau, and also supplies enterprise telecom services to corporate customers in the city.

Citic Telecom will offer 903.4 million rights shares to existing shareholders at the offering ratio of three rights shares for every eight existing shares. If outstanding vested share options are exercised in full ahead of the record date, the number of rights shares will increase to 914.4 million and boost the gross proceeds to $238 million.

The subscription price has been set at HK$2.02 per rights share, which represents a discount of 26.8% to last Friday’s closing price of HK$2.76, and a discount of about 21.1% to the theoretical ex-rights price of HK$2.56 based on Friday’s price.

The stock will start to trade ex-rights on May 8, and the record date for the rights issue will be May 14, according to the announcement. Shareholders who don’t wish to buy the new shares can sell their nil-paid rights in the market between May 20 and May 27. The subscription period for the rights offering will end on May 30.

The first day of dealings in the fully paid rights shares is expected to be June 10.

Citic Group Corp and Citic Pacific currently hold a combined 60% stake in the telecom services provider, and they will take up their respective entitlements, or 542.1 million rights shares, in full, according to the announcement.

The remaining 361.3 million rights shares (or 372.3 million if the share options are exercised) will be fully underwritten by the joint underwriters, namely Citic Securities, DBS, Deutsche Bank, Standard Chartered and UBS, it said. The same banks are also joint global coordinators for the rights issue.

Citic Telecom’s share price ended yesterday’s trading 0.4% higher at HK$2.77, staying above the subscription price and brining its year-to-date gain to 32%. The Hang Seng Index inched up 0.1% yesterday, but is down 2.7% year-to-date, hurt by investor worries about the global economy in recent weeks.

“Although market uncertainties still exist in 2013, we have established a solid foundation to counter the array of challenges,” Xin Yue Jiang, chairman of Citic Telecom, said in an earnings statement in early February.

“Completing the acquisition of an additional 79% of the equity of CTM enables us to extend our telecommunication business across Greater China, and expand our customer base and service offerings ... Through closer partnership with operators, and by offering quality and innovative telecommunication services with extensive network coverage, we are confident of maintaining stable business growth in 2013,” he added.

Citic Telecom reported a 0.7% year-on-year increase in net profit to HK$461.3 million in 2012.

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