CMHK to take control of provincial networks

29 Apr 2004

The world’s largest mobile carrier China Mobile Hong Kong (CMHK) has said that it will pay USD3.65 billion to buy ten provincial cellular networks from its state-owned parent China Mobile Communications Corp (China Mobile), thereby ending the shift of power between the two operators which began back in 1998. The deal will see CMHK assume control of its parent’s networks in Tibet, Ningxia, Xinjiang, Qinghai, Yunnan, Jilin, Guizhou, Inner Mongolia, Heilongjiang and Gansu, widely regarded as the mainland’s least developed areas. Once completed, CMHK will have operations in all 31 provinces on the Chinese mainland.

Under the agreement CMHK will also assume USD470 million of debt associated with the networks, valuing the total transaction at USD4.12 billion. The company has said that it will not raise any fresh capital to fund the deal, and will pay USD2 billion on completion of the agreement, with the balance to be paid off over 15 years. CMHK said in a statement that the acquired companies’ forecast combined net profit in 2004 would be approximately CNY3.12 billion (USD375 million), adding that the acquisition value represents a consideration of approximately 9.7 times 2004 net profit. CMHK said the purchase should boost its earnings per share this year by 6.5% to CNY2.037 after amortisation of goodwill.

CMHK began buying networks from its parent in June 1998 (Jiangsu Mobile) and resumed 18 months later with the acquisition of Fujian Mobile, Henan Mobile and Hainan Mobile. CMHK snapped up another seven networks during 2000, and in July 2002 paid USD8.73 billion for businesses in Anhui, Jiangxi, Chongqing, Sichuan, Hubei, Hunan, Shaanxi and Shanxi, a deal which added just over 25 million new subscribers. CMHK has long since eclipsed its parent in terms of subscriber numbers, boasting 141.6 million users at the end of 2003, up from 117.7 million at the start of the year and 69.27 million twelve months before that.

China Mobile owns 100% of the China Mobile (Hong Kong) Group, which in turn owns 75% of CMHK. UK-based Vodafone acquired a 2.18% stake in CMHK in February 2002 and increased this to 3.27% the following May; it has since upped its stake to 3.4%.

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