China Tower initial public offering sends the right signals

[HONG KONG] China Tower's initial public offering (IPO) is sending the right signals. The mobile-mast giant has set a fair price range for its Hong Kong IPO, which could raise nearly US$9 billion. It has also limited the amount of stock sold to so-called cornerstone investors, attracting more than just friends and family. That's a refreshing change from the usual way Chinese state-owned entities (SOE) are dumped in Hong Kong.

The city is a go-to venue for Beijing's giants to raise foreign capital, but many such deals in recent years have been cosy affairs. The last jumbo IPO of an SOE was in 2016 when Postal Savings Bank of China raised over US$7 billion; nearly 80 per cent was pre-ordered by a hodgepodge of other state-backed firms including a port operator and a shipbuilder. This tactic has been key to getting deals done at expensive valuations unappealing for global investors.

That's why the latest offering stands out from the crowd. Cornerstones have only been allotted 16 per cent of the offer. This should help liquidity when the company debuts in August as anchor investors are typically locked up for six months, meaning limited shares are available for trading if they buy most of the stock.

Meanwhile, the price range values China Tower at 6.5 to 7.3 times estimated 2019 Ebitda, according to Thomson Reuters publication IFR. That looks inexpensive compared to India's Bharti Infratel and Indonesia's Tower Bersama, which trade at 7.6 and 10 times, respectively. Reasonable pricing will have helped the cornerstone roster to attract respected institutional firms including Chinese investment firm Hillhouse Capital and U.S. hedge fund Och-Ziff.

The next key test will be how it fares in secondary trading. Five Hong Kong IPOs in 2016 worth more than US$1 billion that sold most of their stock on offer to SOE-heavy cornerstone books have since fallen an average of 11 per cent from their issue price, with most underperforming the Hang Seng Index. A strong performance by China Tower could convince others of the merits of this friendlier approach.

China Tower, the world's biggest operator of telecommunications towers, has launched an initial public offering in Hong Kong that could raise up to HK$68.1 billion (S$11.8 billion), the company said at a press conference on July 24.

The offering will consist of 43.1 billion shares at an indicative price range of HK$1.26 to HK$1.58 each, it added. Stock worth roughly US$1.4 billion, or 16 per cent of the total offer at the top end of the price range, has been pre-sold to 10 cornerstone investors, according to the prospectus.

Chinese investment firm Hillhouse Capital has committed to buy US$400 million of shares. US hedge fund Och-Ziff Capital Management will invest US$300 million. Taobao, Chinese internet giant Alibaba's online shopping subsidiary, will invest US$100 million.

Cornerstone investors in Hong Kong subscribe for stock ahead of an IPO and are typically prevented from selling for six months. China Tower's shares are due to begin trading on Aug 8.

China International Capital Corp and Goldman Sachs are acting as joint sponsors of the IPO. A total of 15 banks are working on the stock-market listing.

REUTERS