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June 23, 2017

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Unicom counts Alibaba, Tencent among investors to raise US$10b

Source: Agencies | 00:01 UTC+8 June 23, 2017 | Print Edition

CHINESE tech giants Alibaba Group Holdings and Tencent Holdings will be among new investors pouring a total of around US$10 billion into mobile carrier China Unicom, part of efforts by Beijing to rejuvenate state behemoths with private cash, sources said.

Four sources with knowledge of the matter said Alibaba and Tencent would invest in China United Network Communications Ltd, the Shanghai-listed unit of the telecom group, as part of the capital-raising effort.

One of the sources said Alibaba and Tencent would lead the group of investors, while Baidu, the third of China’s constellation of tech giants, has pulled out. The source did not comment on the reason for that decision.

China Unicom, formally known as China United Network Communications Group, plans to raise around 70 billion yuan (US$10 billion) through the Shanghai unit, the sources said. That would mark the largest capital raising in Asia since the initial public offering of insurer AIA Group in 2010, according to Thomson Reuters data.

About 50 billion yuan would be raised through new share issues, while China’s second-largest telecom carrier would also sell part of its stake in the Shanghai-listed unit, two of the sources said.

The sources could not be identified as the negotiations are not public.

Other potential investors approached by China Unicom, named last year as part of a pilot mixed-ownership reform scheme, include the country’s other major internet firms and some state-backed institutions, such as China Life Investment Holding Co, one of the sources said.

Alibaba, Tencent and other potential investors have yet to finalize the terms of any purchase, the sources said, though the deal is likely to be finalized by this summer.

China Unicom is one of China’s three major state-owned telecom firms, along with China Mobile and China Telecom, but also the weakest.

It is one of the world’s largest mobile carriers by subscribers, but competition in China is cut-throat and its earnings have struggled in recent quarters. Private firms have shot ahead in developing cloud and Big Data services as well as mobile software.

China Unicom is widely seen as over-staffed, inefficient and slow to develop key technologies — prompting Beijing to add it last year to the first batch of SOEs who would see mixed-ownership reform.

In March, its Hong-Kong listed arm, China Unicom Hong Kong Ltd, reported a 94 percent drop in profit for 2016.

China has thousands of state-owned enterprises, many of them bloated and debt-ridden, and its mixed-ownership reforms are aimed at reviving the sector with private capital, creating stronger conglomerates capable of competing on the global stage.

The central government issued guidelines in 2015 aimed at overhauling its SOEs, saying it would close down the most uncompetitive firms and modernize the ownership structure of those that remained.

Earlier this week, the China Securities Journal said China had completed 48 deals by Tuesday to allow private capital to invest in government-run enterprises, up ninefold compared with the same period of last year. And that would accelerate, it said.

Other SOEs selected to carry out the pilot mixed-ownership reform scheme include China Eastern Air Holding, China Southern Power Grid and China State Shipbuilding Corp.

China Eastern Air this week sold almost half its freight unit to four firms, including Legend Holdings and Global Logistic Properties, in the Chinese aviation sector’s first mixed-ownership reform deal.

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