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Telecommunication

China Telecom to list on Shanghai market after NYSE eviction

Chairman cites 'rare strategic opportunity' to capitalize on investor interest

Trading of China Telecom's depositary shares, along with those of peers China Mobile and China Unicom, was suspended by the New York Stock Exchange on Jan. 11.   © Reuters

HONG KONG -- China Telecom said Tuesday that it has applied to list its shares in Shanghai, following on the heels of its suspension by the New York Stock Exchange two months ago.

The state-owned network operator, which has its primary listing in Hong Kong, said it aimed to sell up to 13.91 billion yuan-denominated shares in Shanghai.

It is unclear how much it hopes to raise, but based on China Telecom's closing price in Hong Kong Tuesday of 2.65 Hong Kong dollars, the offering could bring in around $4.75 billion.

Ke Ruiwen, who doubles as chairman of China Telecom and its unlisted parent company, said at an online news conference late Tuesday that the group has a "rare strategic opportunity" to list domestically given investor interest in themes including 5G networks, cloud computing and digital transformation.

Ke said the offering proceeds would be used for these purposes. However, the company's budgeted capital expenditure this year amount to 87 billion yuan ($13.3 billion), only a slight 2.6% increase from last year even amid the intensive build-out of 5G network infrastructure.

The company announced its application to list on the main board of the Shanghai Stock Exchange after trading hours in Hong Kong on Tuesday when the group also released its annual results. The company made a net profit of 20.85 billion yuan last year, a 1.6% increase from 2019. Its revenue came in at 393.56 billion yuan, up 4.7% year-on-year.

At the projected maximum size of the initial public offering in Shanghai and factoring in the exercise of a potential overallotment option, the deal would represent a 17.2% increase in China Telecom's overall share base and exceed the size of its Hong Kong share base.

Holders of its Hong Kong shares will be asked to vote on the plan at an extraordinary meeting on April 9. Chinese regulators will also need to grant permission. The price tag of the issuance is unclear as the pricing mechanism for domestic shares is different from Hong Kong's.

China Telecom parent China Telecommunications Corp. was named late last year by the U.S. Department of Defense as one of 44 Chinese companies that have links to the country's military. Under an executive order issued by then-President Donald Trump, American individuals are barred from investing in such companies.

Trading of China Telecom's depositary shares, along with those of peers China Mobile and China Unicom, was suspended by the New York Stock Exchange on Jan. 11. The three have filed an appeal to the exchange to reverse their suspension.

Despite this, China Telecom and its peers have been among the key beneficiaries of record inflows this year through an investment channel that allows mainland Chinese to buy stocks listed in Hong Kong. China Telecom has surged 35.2% in Hong Kong since Jan. 11.

Asked twice by different reporters about the connection between the decision to move ahead with the long-discussed Shanghai listing and the NYSE's move, Ke did not reply directly but said the new listing was an "appropriate decision made at an appropriate time."

Ke carefully avoided criticizing Washington or the NYSE. He stressed that the company had completely abided by all rules and regulations in the U.S. over the past two decades.

Xiaomi and Luokung Technology, which have also been blacklisted by the U.S. Defense Department, have filed legal challenges seeking their removal from the list.

Tianlei Huang, research fellow at Peterson Institute for International Economics, told Nikkei Asia that "it seems like the NYSE will continue to implement the investment ban signed by the former president unless that executive order is revoked by the new Biden administration." He thinks President Joe Biden is too preoccupied with his domestic agenda to revisit the investment ban against China.

Notably, the NYSE proceeded Tuesday with another suspension, halting trade in the shares of state-owned oil company CNOOC, which had also been blacklisted. The prospects of China Telecom resuming trade on the NYSE thus appear slim. 

However, going forward, Huang believes the fate of these Chinese companies will not deter others from seeking U.S. listings in the future, as the "many advantages the U.S. market possess over the Chinese market are long term and structural."

For those seeking to list in the U.S., "such structural advantages may well outweigh the challenges posed by stricter auditing rules and other uncertainties in the broader U.S.-China relations."

Additional reporting by Narayanan Somasundaram

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