China kickstarts privatisation push with Unicom’s share sale

The $11.7bn share sale by China’s second-largest mobile carrier signals the beginning of a government push to further privatise its bloated state-owned enterprises.Copycat deals similar to the one announced late Wednesday could follow as privatisation emerges as a key theme in the government’s broader ambition to overhaul its SOEs – a sector that generates more revenue than the size of Japan’s economy. The idea of infusing private capital is meant to help bring in expertise needed to make state firms more efficient.“This is a whole new level of experiment,” Jefferies Hong Kong Ltd analyst Edison Lee said. “If this one succeeds, the government will probably push it to other SOEs.” According to the plan, more than a dozen investors – including tech giants Tencent Holdings Ltd and Alibaba Group Holding Ltd – will buy a 35% stake in Shanghai-listed China United Network Communications Ltd in a deal that will raise almost 78bn yuan ($11.7bn). Though the unlisted, state-run parent will remain the biggest owner, it will relinquish the majority shareholding it held since the company’s inception.State behemoths including China Life Insurance Co and China Structural Reform Fund Corp will also participate in the share sale. Unicom’s presentation material also listed CRRC Corp as a strategic investor but the train maker said in a statement yesterday that it didn’t participate in the deal. A Unicom representative said a CRRC affiliate will be making the investment.Shares of some SOEs rose amid optimism other state enterprises will follow Unicom. In Shanghai, China Nuclear Engineering surged as much as 10% and China Eastern Airlines Corp climbed as much as 5.8%. In Hong Kong, Cosco Shipping Holdings Co advanced as much as 7.3%.Under the proposal, China United’s unlisted parent will see its stake shrink to 37% from 63%. The new private investors will gain four seats on the board, the state-owned investors will gain another four seats, while Unicom will keep two seats. The remaining five seats will be taken up by independent non-executive directors, according to Unicom.“Private investors will have the same say as their state-owned counterparts, which is unprecedented in China’s history of SOE reform,” Lee said. “The plan is very positive, and the fundraising size reached the top end of market expectations.”Other investors include e-commerce firm JD.com Inc, retailer Suning Commerce Group Co and China’s Uber-slayer Didi Chuxing. Tencent, the gaming and messaging giant, said it was delighted to join the government campaign and that the company looks forward to cooperating with the mobile carrier.“The mixed ownership reform scheme of China Unicom, in our view, is a very monumental step in the economic development of the country,” said Tencent President Martin Lau. “We are actually very honoured to participate in this scheme.”Not everyone was as enthusiastic about the deal.“We are a bit cautious about public companies taking part in these types of plans,” said Kirk Boodry, an analyst at New Street Research. “If they weren’t making those investments before it’s hard to imagine this is a completely independent decision.”Left out of the deal was China Unicom (Hong Kong) Ltd, whose market value has jumped by almost a third this year to more than $36bn before the stock was suspended from trading in Hong Kong on Wednesday. China United shares had risen 80% since October before they were suspended from trading in Shanghai in April, pending the announcement. Both companies are units of unlisted China United Network Communications Group Co – also known as Unicom Group.The Hong Kong shares will remain halted until further notice, the company said yesterday, hours after saying they would resume trading today. The Shanghai-listed shares will resume trading by Monday, according to the company.As to Unicom, bringing in new investors will help the company bolster innovation and allow it to “transform from a traditional mobile carrier to a comprehensive information and technology operator,” chairman Wang Xiaochu told reporters in Hong Kong on Wednesday. The share sale will also align the interests of shareholders and employees, he said.During the past few months, Unicom has signed cooperation agreements with Baidu Inc, Alibaba and Tencent, moves that have generated speculation that the internet companies would get involved in the government mixed-ownership plan.Unicom’s parent was among six SOEs picked by the nation’s economic planner last year for a pilot programme in mixed-ownership – China’s preferred term for private capital’s investments into state firms.In September, China’s National Development and Reform Commission also picked China Southern Power Grid Co, Harbin Electric Corp, China Nuclear Engineering, China Eastern and China State Shipbuilding Corp to take part in the pilot programme.