SHANGHAI, Nov. 5 (UPI) -- China Telecom Corp. is moving forward with plans for an initial public offering in Hong Kong and New York, cutting the size of its offering by more than 50 percent but maintaining the original share price, sources familiar with the deal said on Tuesday.
In a statement to institutional investors, the fixed-line Chinese telecommunications carrier set a tentative date of Nov. 14 for its trading debut in New York and the following day in Hong Kong, the sources said.
The company told fund managers it plans to offer 7.556 billion shares in the IPO, raising up to US$1.66 billion.
Originally, the company offered to sell 16.8 billion shares in a range of HK$1.48 to HK$1.71 each, and between HK$18.97 and HK$21.92 for each American depositary receipt.
China Telecom officials said in the statement that the price remains unchanged for the listing.
Sources said that fund managers were told book orders for institutional investors would end on Wednesday in New York and would open for Hong Kong retail investors on the same day, closing next Monday.
Merrill Lynch, Morgan Stanley and China International Capital Corp. -- the lead underwriters of the share sale -- declined to comment about the China Telecom listing on Tuesday when contacted by United Press International.
The proposed IPO price values China Telecom at about 9.6 times forecast 2003 earnings, lower than its competitors China Mobile Ltd. (Hong Kong) and China Unicom, which are trading at multiples of 10.8 and 12.5, respectively.
The announcement follows a week of intense speculation about China Telecom's overseas debut, following the announcement by company officials that the listing would be delayed.
Last week, China Telecom pulled the plug on its planned US$3.6 billion IPO in a controversial move that company officials and analysts attributed to weak institutional interest in the listing.
Analysts say the lackluster response to the listing, and the company's handling of the IPO, shook investor confidence in the level of transparency at the telecommunications firm.
"Foreign investors who might have been interested in the share issue last week, are thinking twice about putting their money into a firm that changes its policies overnight," said Chen Bo of Haitong Securities in Shanghai.
"It's likely that many retail investors will lower the size of their orders when it is re-launched."
In the original offering, the Hong Kong retail tranche was 1.05 times subscribed.
Institutional investors subscribed to about three-quarters of the shares that had been earmarked for them, although they had been allocated at least 95 percent of the issue, sources said.
Investor confidence in the deal was dealt a heavy blow when the company announced last week that it planned to impose an 8.5-fold rise in international direct dialing interconnection fees for overseas carriers.
The controversial move, which was seen as a last-ditch effort to beef up the overseas listing, merely drove away many retail investors who had placed orders, analysts and brokers said.
Beijing scrapped its plans for the IDD increase on Tuesday, offering to compensate fixed-line carriers in Hong Kong for the additional revenue that had been expected from the move.
Analysts say China Telecom retained the original share price because changing it would have required the approval of China's State Council, which would have delayed the launch.
Chinese regulations bar state-owned companies and enterprises from selling government-held assets for less than book value.
"They would need approval from some of the highest levels of government to do that," said one analyst.
China Telecom officials must still clear a number of regulatory barriers in Hong Kong and Beijing before they can re-launch the overseas financing, the analyst said.
The IPO has proven embarrassing for company officials -- and it has also damaged China's efforts to reform its telecommunications industry through listings overseas.
"This doesn't bode well for future overseas listings by Chinese telecommunications firms," said Richard Meng, a Shanghai-based financial consultant. "The weak reception is likely to make others think again."
The analyst said the deal was politically sensitive for China's leaders and coincides with a major change in leadership expected to be unveiled at the 16th Communist Party Congress, which begins this Friday.
"Beijing wants the listing of China Telecom to go ahead," he said. "Collapse of the deal is not an option."
In May, the Chinese government announced the break-up of the one-time monopoly China Telecom into two companies, as part of a much-anticipated shake-up in the state's dominance of the market.
Before the break-up, China Telecom, which employs more than 1 million people and earns about $20 billion in revenue a year, enjoyed a near-monopoly over phone service in the world's largest country.
Officials had hoped that a multi-billion dollar listing on the overseas stock exchanges would fund industry reforms while improving the competitive edge and attractiveness of the company to foreign investors.
China's telecom giants are facing increased competition as more foreign companies enter the potentially lucrative market as part of the nation's commitments to the World Trade Organization.
Beijing has said it will allow foreign firms to own up to 50 percent of fixed-line phone ventures two years after it joins the WTO. Overseas firms may have no more than 49 percent of mobile-phone firms after five years.
