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China Telecom raises $8.4bn in Shanghai months after US delisting

Offering highlights Beijing's resolve to minimize fallout from Washington crackdown

A China Telecom booth at a Beijing exhibition in July 2021. The offering by the world's largest telco will be the mainland's largest listing in a decade.   © Reuters

HONG KONG -- State-run China Telecom is set to raise 54.2 billion yuan ($8.4 billion) in its maiden share sale in Shanghai, mere months after being forced to delist from the New York Stock Exchange.

The offering by one of China's three state telecom groups will be the mainland's largest listing in a decade.

China Telecom in a filing on Friday said it will issue up to 11.96 billion shares at 4.53 yuan apiece. The company's Hong Kong-listed shares ended the morning session 0.3% lower at 2.92 Hong Kong dollars (38 U.S. cents), trimming gains for the year to 40%. The offer price in Shanghai represents close to a 90% premium over the current trading price in Hong Kong.

"The issue price was determined based on several factors including the fundamentals of the issuer, valuation of comparable companies [and] market conditions," the company said in the statement.

The company said in an updated prospectus issued on Friday that it will apply for trading on the bourse "as soon as possible" after the new share issuance is completed but did not specify when trading might actually start.

The offering is another sign of Beijing's resolve to minimize the fallout from the U.S. investment ban, which prohibits American nationals and enterprises from trading or holding companies on the blacklist. More than 50 Chinese companies, including telecom equipment maker Huawei and Semiconductor Manufacturing International Corp., are on the list over alleged ties to the Chinese military or for sale of surveillance technology for use against religious minorities and dissidents.

After the new share issuance, the fully state-owned parent of China Telecom will remain its controlling shareholder, owning 61.77% of outstanding shares, even if the overallotment option is fully implemented.

Ke Ruiwen, who doubles as chairman of China Telecom and its unlisted parent company, said at an online news conference on Friday that the group has a "rare and precious strategic opportunity" to grow its business and share the fruits of that growth with domestic investors.

The company said its revenue for the first half of the year came to between 213.6 billion yuan and 218.41 billion yuan, up around 11% from a year ago. Net profit grew around 26% to 28%, to between 17.57 billion yuan to 17.85 billion yuan. Full results are due out next week.

China Telecom, along with state-run peers China Mobile and China Unicom, was suspended from U.S. exchanges in January and delisted in May to comply with an executive order signed by former U.S. President Donald Trump. The Biden administration has kept the pressure on and in June unveiled a refined order that analysts said is more legally enforceable.

China Mobile, the largest telecommunications carrier in the world by subscriber numbers, said in May it will list its shares in Shanghai in a deal that could rival China Telecom in size. China Unicom already has a separate unit listed in Shanghai.

China Telecom plans to use the funds raised to invest in 5G networks, cloud-network integration and for research and development, it said in its Friday filing.

China Telecom has budgeted 87 billion yuan for capital expenditure this year, a 2.6% increase from last year.

Edison Lee, a telecom analyst at Jefferies, said on Friday following the IPO pricing that China Telecom remains to be "one of our top picks."

"We believe China's industrial digitization in the next five years will be first led by state-run enterprises, and the Chinese telcos in general are strongly positioned to leverage that growth," he wrote in a note to clients. He sets his target price for Hong Kong-listed shares at HK$5.12, 75% higher than current levels.

Meanwhile, Nasdaq-listed Chinese EV maker Li Auto is guiding a price of HK$118 a share for its IPO in the territory, according to two people familiar with the matter. The pricing represents a 3.2% discount to the company's last closing price on the Nasdaq.

Strong investor appetite for "homecoming" listings should embolden companies facing the threat of eviction from U.S. exchanges and provide relief to authorities who are encouraging such moves.

Under a law enacted last year, Chinese companies risk being kicked off American exchanges by 2023 if U.S. regulators are not permitted to review their audit records. Beijing forbids such reviews on national security grounds.

Chinese authorities in the past month have placed restrictions on offshore listings by mainland companies on data security fears.

Additional reporting by Cora Zhu in Hong Kong

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