State-owned red chip China Telecom Corp. Ltd. shares were last traded little changed on the Hong Kong Stock Exchange Wednesday after the company said it would raise $4.1 billion when it listed on the Shanghai Stock Exchange - after being booted off the New York bourse.
It says the new secondary listing will raise cash and improve its financial stability.
The Shanghai listing announcement came after the Hong Kong market closed Tuesday. The company's shares rose to HK$2.89 ($0.37) in after-hours trading but fell back to open Wednesday at HK$2.75. They were last traded at HK$2.68 each.
Telecommunications company analysts were disappointed at the decision. "The key disappointment was the plan to issue around 12.1 billion shares on the A-share market in a new listing, representing dilution of around 15% to the existing share base. Given its strong balance sheet and cash flows we don't believe the company needs to raise the money," Morningstar telecommunications analyst Dan Baker said Wednesday.
"On our estimates the capital raise will leave the company with net cash, and we forecast this net cash level to increase over time. While the share price for the raise is yet to be determined, raising money at the current share price would destroy value, in our view," Baker said.
China Telecom also announced earnings Tuesday after the market closed. China Telecom remains undervalued after reporting a strong 2020 result, Baker said. Services revenue accelerated over the year - growing 4.5% for the full year, 6.7% for the second half and 7.9% for the fourth quarter.
This was driven by industrial digitization and data revenue growth on both fixed and mobile networks, Baker said.
China Telecom's full year growth outperformed the industry average of 3.6%, according to China's Ministry of Industry and Information Technology.
"We continue to see the telecom companies as beneficiaries of the information revolution. 2020 reported operating profit was down 1.5% but excluding a one-off 5-billion-yuan property, plant and equipment impairment loss, operating profit would have increased by 15.9% for the full year and 61% for the second half," Baker said.
Its second listing will see the company sell up to 12.09 billion shares - equivalent to 13% of its enlarged total outstanding shares. In an exchange filing after the market closed Tuesday, China Telecom said it will raise $4.1 billion based on its Hong Kong closing price Tuesday.
China Telecom could also expand its offering by 15% if it exercises a greenshoe option.
China Telecom said the secondary listing in Shanghai - the world's fourth largest bourse by market capitalization - can help it "broaden sources of funds, enhance capital strengths and improve risk tolerance."
China Telecom was blacklisted in the U.S. in January despite having no significant presence in U.S. equity markets. It was blacklisted along with China Mobile Ltd. and China Unicom Hong Kong Ltd. for allegedly being partly owned by the People's Liberation Army.
