The four major telecom operators in China's comparative analysis of financing strategies

Study: Lung Wei Xiu Fu WANG Shi-xin Jiang Long

[Abstract] China Telecom, China Mobile, China Unicom, China Netcom, the financing of the four major operators ① equity financing strategies and actions which were compared and evaluated. Analysis showed that the four major operators in the market motivation, market timing selection, mode of operation so listed have their own characteristics, but there are certain problems. In combination with these issues of financing the telecom operators in decision-making recommendations.

[Keywords:] telecommunications; operators; financing strategy; capital

With the continued rapid growth in the telecommunications industry and the deepening of the globalization process, coupled with high capital investment in the telecommunications industry characteristics (Table 1), carriers or both network construction investment, are faced with large capital needs, capital gradually be replaced by technology-driven primary factor in the development of the telecommunications industry. just that, carriers have used various methods from a variety of financing sources and financing strategies are increasingly becoming the choice of financing telecom operators, the key to efficiency, thereby affecting the telecommunications operator's development.


First, the four major operators compare the capital structure and financing strategy

Telecom operators in various stages of development have different financing strategies: start-up period, as introduction of new technology and equipment, businesses require significant capital investment, but there are some investment returns lag; expansion, higher demand for funds, but the business growth is also large, efficiency has become increasingly evident; stable, communication scale, communication capability has been formed, to gradually reduce funding needs, benefits have become stable; recession, companies continued to decrease in operating income, cash flow tight, there will be losses, financing needs atrophy ( Table 2).

(A) China Mobile Capital in the financing structure
China Mobile Communications Corporation (hereinafter referred to as China Mobile) in the May 17, 2000, with registered capital of 51.8 billion RMB yuan, assets of over
5 600 million, is China's largest overseas market value of listed companies in one of the world's largest telecom operator by market value. China Mobile is the first use of equity financing telecom operators, but also large-scale claims of non-bank loans those who finance precedent. These two financing model is not only good for China Mobile contributed to the financing structure and establish a good reputation, but also to provide adequate post-market competition, financial and high-quality financial structure. In recent years, China Mobile financing structure and related financial position as shown in Table 3.


Prior to 2001, China Mobile's capital expenditure and endogenous financing capacity, although still lower than China Telecom, free cash flow is relatively small, but has shown strong growth. From the capital structure, equity financing to reach this stage more than 50%, the source of financing began to occupy 30% of the share, while the smallest debt financing, only 20% less than clear preference for external financing in equity financing model 2002 year, due to the acquisition of parent company assets need, China Mobile to offer, 8.0 billion in bonds, significantly increased the amount of bank loans, debt financing for the first time higher than the endogenous financing, is the second largest sources of funds, equity financing ratio dropped to below 40%, after bank lending has been dominated by this mode of financing relatively important position In 2003, China Mobile's capital expenditure while the annual growth rate in a double-digit expansion, but far beyond the financing capacity of the source of the scale of capital expenditure, can independently meet the capital requirements, China Mobile, in addition to maintaining appropriate Long-term bank loans, and did not seek more financing channels, there is no equity financing. By 2006, the source of financing has accounted for more than 50% share of the financing, and equity financing and debt financing decreased to 33% and 16%.

(B) China Unicom Capital and Financing Structure
China United Telecommunications Corporation (hereinafter referred to as China Unicom) approved by the State Council on July 19, 1994, the registered capital of 16.54 billion yuan. From the beginning of the establishment of China Unicom's external financing is more than the dominant source of financing. China Unicom Analysis of financing in recent years as shown in Table 4.

Before 2000, China Unicom's financing is relatively simple, the basic dependent on bank loans, and the source of financing was subject to specific competition, firm size and earnings can not support large capital requirements, financing structure does not matter at this time the issue of basic .2000 -2002 years, due to construction of CDMA mobile communication networks need large-scale capital, equity financing as Unicom prefer the financing, through the implementation of the three listed, raising funds to reach 58.2 billion yuan, greatly optimizing the company's financing structure, but also can not meet the financial needs of a large scale, China Unicom added debt financing. At the time, accounted for more than 50% equity financing, debt financing, 30%, the source of financing to expand into more than 10%, free cash in a net outflow of state .2003 After financing the company pay more attention to diversity, a variety of lower cost, less risky way of financing on stage. such as 2005 and July 2006 respectively, issued 10 billion yuan and 60 billion in short-term financing bonds, 2006 June 20 Japan, SKT subscription Liantonghongchou issued $ 1,000,000,000 aggregate principal amount of convertible bonds, which are in the project finance play a decisive role. this stage of the financing structure of China Unicom has remained relatively stable state, to 2006 During the year, the source financing, debt financing, equity financing ratio of 47.8%: 32.7%: 19.4%.

(C) the status of China Telecom's capital and financing structure
China Telecommunications Corporation (hereinafter referred to as China Telecom) is the national telecommunications reform program in accordance with the formation of large state-owned telecommunications enterprises, the basis for its establishment as a division of the former China Telecom Group to China Netcom's 10 provinces (autonomous regions and municipalities), telecommunications company other than the telecommunications company, the registered capital of 1 580 million yuan. China Telecom, the financing of recent years, as shown in Table 5.

Prior to 2001, China Telecom, the main source of financing and the use of debt financing within the two financing methods, sources of financing relative monopoly of its strong policy reasons .2002 years later, through two major split and peel, China Telecom gradually began to seek autonomy in a variety of financing channels, to address the investment environment, market needs in 2002 year in November, China Telecom on the HKEx and the New York market, raising 10.4 billion starting in 2004, issuing 5.3 billion new H shares shares, raising about 120 billion, but financing is still far short of the expected amount of the level of .2003 in December and June 2004, respectively, to 46 billion yuan and 248 million on the price of the provinces from the Telecom assets acquired, the two The acquisition gave the company enormous financial pressure. China Telecom, the main bank loan to expand the financing strategy, both short-term loans and long-term loans go hand in hand. this period, the debt financing accounted for 60%, less than 30% of endogenous financing, and equity financing less than 10%. China Telecom features full advantage of the financing of the financial leverage effect, but asset-liability ratio has been high, the corresponding increase of the financial risk. until 2005, China Telecom, was released in a period of 6 months, and a face value of RMB 100 billion short-term financing bonds, the initial financing of a wide range of interest shown.


(D) of China Netcom Capital and Financing Structure
China Network Communications Group Corporation (hereinafter referred to as China Netcom) is a telecommunications reform program under the State Council, on May 16, 2002 in the former China Telecom Group Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Henan, Shandong, 10 provinces (autonomous regions and municipalities), telecommunications company, China Network Communications (Holdings) Ltd., Jitong on the basis of a limited liability company founded by. China Netcom, the financing of recent years, as shown in Table 6.

China Netcom began to form a balanced financing structure is based in Hong Kong in November 2004 the company established Netcom signs, at which time a total funding of approximately 104 million. And similar to China Telecom, this time the financing structure to debt financing, accounting for about 68.5%, 23% within the source of financing, equity financing at least, only 8.5%. debt financing, short-term bank loans account for a very important position, accounting for 50% of the sources of financing more than .2005, China Netcom's diverse Financing is becoming clear, comprehensive application of bonds and short-term financing bills, 2005 and 2006, the balance of funds of non-bank loans reached 232 billion yuan and 100 billion yuan. but at this time is still the source of financing: debt financing> Internal Financing> Equity Financing. Overall, the four major telecom operators have their own characteristics financing strategy, summarized in Table 7 below.


Second, the four major operators in analysis and evaluation of equity financing

Four operators have carried out public financing in recent years, in general, China Mobile and China Unicom to market and financing more successful, China Telecom and China Netcom's listing and financing are less than satisfactory. The key to the success of public financing growth by industry, market timing, management structure, pricing, underwriting and other factors.

(A) Comparison of Listed motivation
China Mobile was listed in 1997, a time when Beijing Enterprises, the Shanghai Industrial and other red-chip companies in China in the international capital market set off a fever, was not split China Telecom, China Unicom is also very weak and out of China Telecom's high quality assets (Guangdong and Zhejiang provinces of mobile assets) to the international capital market test the water, then repeatedly issuing new shares and bonds, which are aimed at the acquisition of the assets of the parent company. For China Mobile, it is not the purpose of financing, and more many go abroad in order to display the international image. China Unicom's market is mainly the desire for .2000 of capital before the development of China Unicom has been slow, difficult to achieve by self-accumulation and rolling development, the stock market was almost the only choice ③. China Netcom's listing, there are four motives: first, the strong demand for funds, compared with China Telecom, China Netcom, the strength of it is not so strong. In addition, China Netcom assumed 2.8 billion acquisition of Jitong debt, the acquisition of small Netcom need at least about 21.3 billion yuan fund set up branches in 21 provinces in the South has invested 108 million yuan. Second, the industry driven by competition, the four major telecom operators, China Mobile, China Unicom, China Telecom is already a listed company, if China Netcom is not listed in the regulation, policy support possible at a disadvantage and may even be marginalized. Third, when including the four major commercial banks, including a large number of listed central enterprises are actively doing preparation, if not first step Netcom may be waiting a long time. Fourth, the listing will further enhance China Netcom its international image, inherited a small legacy Netcom good international brand equity.

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(B) of the listed steps compared with the listing of the main
Steps from the market point of view, the four operators are to follow, "the overall market, step by step" principle. First, a spin-off, stripping out the high-quality assets, as a public body, the time is ripe, and then gradually reverse the acquisition of the assets of the parent company , and ultimately the overall market. The reason why this choice for two reasons: first, part of the assets of not listing requirements, if included in listed companies, the impact of the smooth IPO; second, the four operators, a huge amount of assets , although in the overseas listing, but if the time overall market, capital market, or difficult to meet their financing needs.

From the main market, China Mobile, China Unicom, China Netcom in Hong Kong through the red-chip companies listed, while China Telecom was set up in China H-share companies listed. From the current situation, compared with H shares listed red chips Listed there are many advantages: first, the listing process is more streamlined than the H shares; Secondly, the local shares and the Hong Kong red chips to achieve full integration; Finally, the red-chip company's capital operate more freely. but red chips listed has its own drawbacks: a that may involve the loss of state assets. Second, the H shares listed on the form of a benefit is the opportunity to return to the mainland A-share market sent shares of the secondary financing, and red-chip company is relatively difficult.

(C) the place of listing and listing of the timing comparison
Four major operators in Hong Kong and New York have adopted the strategy also listed. The main reason is: First, the development of immature domestic securities market, the market capacity is not big enough, small-scale financing ④, financing a relatively short time, and the means of financing a single ; Second, the domestic stock market there are market access rules across the board, refinancing high standards, flexibility is low, stock market, and so the problems and shortcomings of low credibility, can not give full confidence in listed companies; Third, select the overseas telecom operators in China listed not only achieves the "financing" the purpose, but also "financial system" and "Financial Intelligence"; Fourth, the overseas market, to quickly raise awareness, foster international operation of the company brand image.

From time to market, China Mobile's market opportunity to choose the best, the public offering have elected two years ago in 2000. Overseas initial public offering of China Unicom in 2000, the timing is very good to catch up before the telecom bubble burst last train; and its domestic IPO in 2002, although this time telecom bubble has burst, A-share market began a downturn, but because of its unique concept, the mobile communication industry, high-growth, or to help China Unicom to complete the A the second largest ever stock market IPO. In contrast, the two fixed-line operators China Telecom and China Netcom, market timing is not so satisfactory. Both are in the telecommunications bubble burst, at a low ebb of the Chinese concept landing when the international capital market, and international fixed-line operators have tired is completed, the concept of investor interest in fixed-line low, which meant two operators inevitable stumbling listing process, China Telecom issued by the substantial reduction in the size China Netcom by low price-earnings ratio and high dividend payout ratio was able to force the market.

(D) Comparison of operating practices listed
Operating practices from the market point of view, China Mobile is more scientific, much praise China Unicom, China Telecom was "critical," China Netcom "lose."
China Mobile is reflected in several aspects of science: first, from beginning to end, China Mobile to standardize methods of operation are listed in the laws and regulations on cross-border or not the behavior of walking a fine line. Second, market timing is very reasonable This has been discussed in the previous. Third, China Mobile is very rich in financing, according to the company's development time and to choose the most favorable financing their own way.

China Unicom is in the listing process to create a number of operational records of domestic and overseas capital: Hong Kong stock market's largest ever initial public offering; second in Asia, the world's top ten initial public offering; largest overseas Chinese enterprises for the first time public offering; the domestic A-share market's largest float; the first domestic A-share market in the public offering of telecom operators; the first domestic and overseas public offering in the telecom business. can be said that China Unicom is not superior in qualifications case, to maximize the role of capital market resources, business development raised the necessary funds to achieve the state-owned capital and increase their value.

China Telecom's listing, stumbling start to finish, very few bright spots, there are three main issues: first, the listing of bad timing, underestimated the difficulties. Second, the listing process targeting swing, investors can not see the future development of China Telecom direction. Third, not familiar with the rules for the operation of overseas capital market. in China Telecom IPO launched a critical moment, suddenly announced to raise the international long-distance access charges, or nearly 8 times. This substantial and sudden price increase fully exposed China Telecom to develop a long-standing monopoly of style, which largely destroyed the China Telecom in the overseas capital markets built on integrity, self-discipline of corporate identity, direct impact on China Telecom's listing process.

China Telecom, China Netcom IPO learned the lessons of failure, the investors made a great article on the return, and finally were successful in times of adversity: the first is the low price-earnings ratio, price-earnings ratio is a listing of China Netcom, 7 times, while China Telecom was 20 times. The second is the dividend rate, promises up to 35% two years after listing to 40% of a high payout ratio. Third, China Netcom have been important investors in the Hong Kong stock market has the support of Li Ka-shing, Hong Kong's three giant Fu (Li Ka-shing, Lee Shau Kee, Cheng Yu-tung) spend 1.5 billion purchase.


Third, the four major operators of capital market financing strategy for the shortcomings

(A) of the place and method of financing a single
Prior to 1998, China's telecom operators Zhengqigeyi period, the way the telecommunications industry more than the use of funds to take advantage of foreign banks and government loans and the use of local telephone installation fees and postal surcharge tax preferential policies to the formation of a series of its own internal capital-based. With the separation of enterprise and telecommunications restructuring, foreign banks and government loans and a series of preferential policies for the reduction of taxation, the current transformation of the telecom operators have used in the external capital markets have raised funds through direct financing, and more dependent on external financing, ignored its own accumulation, and shown in the external financing re-light debt financing preference shares, mainly in the implementation of the starting stock, share placements, issuance of stock, etc..

The way in external financing to equity financing the main cause high financing costs. Developed in the choice of carrier when external financing, debt financing tends to give priority to using the method generally higher debt ratio. Long-term debt and equity capital ratio close to 1:1 (the average level of market operators, 0.98), the average debt ratio of 50% or so. in the asset-liability ratio is too high (telecom operators generally do not exceed 50%), raising debt financing bring the ratio of financial leverage effect, can increase the equity return on capital, the interests of shareholders to maximize the business principle. but operators generally of inadequate understanding of debt financing, asset-liability ratio is not high in the case is still keen to their investment financing.

Location choice in financing, the telecom operators are primarily focused on the Hong Kong stock market on the site, which may be out of Hong Kong is a world financial center and the Hong Kong and the Mainland to facilitate the contacts of various considerations, which will result in over-reliance on the Hong Kong telecom operator stock market financing. After the 1998 Asian financial crisis, has the financial strength of our economy has not recovered, coupled with international postage and vulnerable situation in the Taiwan Strait and other politically sensitive factors, the Hong Kong stock market is easy big fluctuations, corporate finance risks.

(B) separation of investors and consumers, telecom operators is difficult to achieve business value and capital value of unity, is not conducive to long-term development
China Mobile, China Telecom and China Netcom are all listed in the Hong Kong stock market, investors in the stock and foreign investors in Hong Kong, only a part of China Unicom China red chips listed on the right, and that consumption of telecom services of several companies who are all in the Mainland, although consumers want to buy the shares of several telecommunications companies, but was locked into the policy, not as its investors. As the capital of the profit-driven, even those strategic investors will want to telecommunications operators to reduce the long-term capital expenditure plans, the pursuit of short-term return on investment. so telecom operators and consumers to investors separation, due to differences in their point of departure and even opposition, the development of telecom operators will have the opposite direction. For example: when the territory Consumers urged telecom operators to lower telecommunications charges, the Hong Kong investors in the capital market has strong demand strict implementation of the national telecom operators standard tariff provisions, can not just price; starting in the telecom operators and the additional shares, those institutional investors telecommunications carriers required by regulatory authorities on the tariff policy to ensure stability, or to sell stock or manufacture a large number of events caused a substantial stock market volatility to affect the normal decision-making government regulators. coupled with Hong Kong is a very sensitive region, the interests of trade-offs , tend to make government regulators to make concessions to Hong Kong investors in 2000, China's mobile phone charges to change a single two-event, is a typical example. sacrifice the interests of the mainland telecom operators to support the consumer telecom operators to give foreign investors a good return, give telecom operators the minds of consumers in general left a bad impression. in the telecommunications industry to break the monopoly and introducing competition years later, the minds of consumers in the domestic telecommunications monopoly + profiteering remain as a synonym, which would affect the long-term carriers and healthy development.

Links to Research Papers Download http://www.hi138.com (C) discount or cheap overseas listed issue is widespread, increasing the value of state assets being challenged
Differences between domestic and overseas market price-earnings ratio of the value of state assets. China's domestic stock market price-earnings ratio is much higher than Hong Kong and New York stock market. In general, the Shanghai Stock Exchange Hong Kong Stock Exchange, the average price-earnings ratio is more than twice (see Table 8), whereas in the case of determining earnings per share, price-earnings ratio the stock issue price is decided by the level of enterprises. overseas capital markets issuance of shares of the price-earnings ratio is generally low, companies lower the price of shares issued. In fact, the first to achieve outside of China listed companies, some went so far below the issue price of the company's net assets, and most enterprises offering price hovering in the net assets.


China Telecom issue price of 1.48 Hong Kong dollars per share, and by the accounting, the net assets of China Telecom Hong Kong dollar 1.45 per share. The concept of net asset value is after all the assets, after depreciation, the carrying value of the assets of the majority carriers accelerated depreciation method, original value of the assets of a huge amount of depreciation each year a large, such as optical cable and cable is 10 years of depreciation, depreciation of the exchange equipment is 5 years after the expiration of their book value to zero, but the communications cable and cable and other communication assets Their life is more than absolute depreciation period, it can be said that China Telecom is the majority of the net asset value after depreciation of assets has been severely devalued, and even under a zero book value calculated by the low prices in this market, in fact, is greatly underestimated the real value of state assets, which increase the value to the state-owned assets has posed a serious challenge. The companies listed in the domestic issue price is much higher than the net assets of China Unicom A Share issue price of 2.3 yuan per share, pre-release Net assets per share was 1.71 yuan, nearly 35% of the issue premium. If the telecom operator to the appropriate size of the shares issued in the country, it certainly sought after by domestic investors and have a good performance. so some people are not telecom operators in China consider the opportunity to blindly tried to squeeze into the overseas market, they sell good assets at good prices and so suspicious, questioning the real purpose of overseas listing.

Access to capital in the global telecom operation in the context of the era of competition, China's four major telecom operators in the financing strategy there are still many areas for improvement and further broaden the financing channels and optimize the capital structure, increase awareness of the source of financing and equity financing efficiency thus effectively reducing the cost of capital, and improving the profitability and sustainability of China's telecommunications companies the ability to improve international competitiveness of the main ways.


Fourth, China's telecom operators proposed financing decision

Through the above four major telecom operators on the financing strategy of comparison and analysis showed that the four major operators in the market motivation, market timing, market, etc. mode of operation have their own characteristics, but there are many problems. Therefore, the author of China Telecom operators financing decision to propose the following:
First, in the current level of its debt financing has resulted in the efficiency of its enterprise value have negative effects in the case of the four major telecom operators should pay attention to the environment based on changes in external financing options financing channels, and pay attention to maintaining debt financing and equity financing reasonable proportion, to improve its overall financial efficiency and business value. From the perspective of improving the financing efficiency, optimize the capital structure of China's telecom operators financing order should be: expand direct financing channels, improving the efficiency of equity financing; improve the indirect financing system, and improve efficiency of debt financing; to maintain the source of financing efficiency advantage.

Second, outside equity financing, the accurate grasp of the market opportunity is very important for the success of the financing, while the transformation of corporate governance is the fundamental guarantee for enterprises listed; in the domestic equity financing, the Chinese telecom operators should pay attention to domestic financing equity financing Demonstration and choice; stock issuance after the strengthening of information disclosure and corporate operations.

Third, including the source of financing, sources from within the financing system to deepen the perspective of establishing a central clearing house funds of funds as the core platform for telecommunications operators to improve the efficiency of endogenous financing basis; implementation of a comprehensive budget management and expenditure of two line mode of operation, strengthen the business process monitoring, is the source of telecom operators to improve the efficiency of an important part of the financing.

Fourth, in the diversification of financing, the telecom operators should be based on different development periods and different market conditions and the different business characteristics to take a different means of financing, continue to seek capital structure, financing options optimization; actively strengthen channel innovation and constantly explore new financing channels, to build and improve its diversified financing model.

Fifth, the optimization of capital structure, development strategies should be oriented to the company, to promote enterprise change their operational mechanism, to realize their own virtuous cycle; establish diversified financing channels, keep flexible capital structure; to debt financing and equity of financing complementary optimize the capital structure. optimization path optimization type of financing, financing, cost optimization, finance term structure optimization, optimization of the financing structure of interest rates, a funding currency currency structure optimization, the mode of financing can be converted.

In addition, the multi-channel integration, value chain integration operations will be the future direction of enterprise development, innovative use of financial products is to improve the competitiveness of telecom companies a powerful weapon.


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