China Telecom Corp verifies terms of deal

14 Apr 2004

China’s biggest fixed line operator China Telecom Corp said yesterday that it will pay USD3.4 billion to its parent company China Telecom for ten networks in the Gansu, Xinjiang and Guizhou provinces, and also assume USD4.8 billion of debt owed by the networks as part of the deal. Although China Telecom Corp claims the new acquisitions will boost its earnings per share by 5% in 2004, the analyst community has questioned the high price paid for the provincial networks, which have commanded a disproportionate level of China Telecom’s capital expenditure (capex) in recent years. According to the company, its ratio of capex to revenue was around 36% in 2003 across all of its operations, but 57% at the ten networks in question which collectively recorded net losses of CNY10.8 billion in 2003, around 45% of which was associated with writedowns on their value.