More big tech companies are lining up to invest in a unit of telecommunications giant China Unicom (728. HK).
Reuters reports that internet majors Baidu (BIDU) and JD.com (JD) will join peers including Tencent (700.HK) and Alibaba (BABA) to invest up to USD12 billion in China United Network Communications (600060. CN), a Shanghai-listed subsidiary of the state-owned operator.
The plan is part of a broader strategy to inject more private capital into China’s state-owned enterprises. China Unicom is one of the early pilots for so-called mixed-ownership reform. Reuters reports that the share sale could be finalized by the end of next month.
Analysts at Jefferies say the latest development is a positive. However, Jefferies’ Edison Lee reckons it’s unlikely they’ll be room for more than two investors in this deal. He explains more:
Unicom has repeatedly stressed that the key objective in this exercise is to look for strategic investors that can achieve synergies with Unicom and help it operationally, which is even more important than the money to be raised. Therefore, we think it is very unlikely that Unicom will take on more than two investors, because too many investors could mean losing focus and no one making a difference.
He adds, intriguingly, that some of the names being bandied about in relation to the Unicom deal could be getting involved just to score points with the Chinese government. Lee says this is all the more pertinent given authorities have recently been taking a heavier hand to regulating the internet, such as a recent decision to limit access to Facebook-owned (FB) messenger WhatsApp.
There’s one additional consideration. While Alibaba and Tencent are arguably the two best-equipped investors to complete this deal, Lee’s not convinced they’ll be able to work together, given they’re competitors. He thinks Tencent and JD.com could be a better partnership. We can only wait and find out.
Shares in Unicom were up 0.9% in Hong Kong trading Monday morning. They’ve returned 27% since New Year.
Daniel Shane
BARRON'S
|
.jpg)
