China Telecom to Acquire Assets from its Parent at a Consideration of RMB46 Billion (US$5.6 Billion)

13 Aug 2003

China Telecom Corporation Limited (the "Company") (HKSE: 728; NYSE: CHA) announced today that it has signed a conditional sale and purchase agreement to acquire from China Telecom Corporation, the Company's controlling shareholder (the "Parent"), 100% equity interests in 6 provincial telecommunications operations and certain assets related to network management and research and development (the "Target Assets" and the "Acquisition"). The 6 provincial telecommunications operations include Anhui Telecom Company Limited, Fujian Telecom Company Limited, Jiangxi Telecom Company Limited, Guangxi Telecom Company Limited, Chongqing Telecom Company Limited and Sichuan Telecom Company Limited (the "Target Companies").

The Acquisition was negotiated and entered into on an arm's length basis and on normal commercial terms. The Company will acquire the Target Assets for a total purchase price of RMB46 billion (approximately US$5.6 billion). The net indebtedness of the Target Assets as of June 30, 2003 amounted to approximately RMB34 billion (approximately US$4.1 billion). The purchase price will consist of payment of an initial consideration and a deferred consideration.

The initial consideration of RMB11 billion will be satisfied upon completion of the Acquisition by cash payment in RMB. The Company intends to finance all of the initial consideration using internal cash resources. The remaining consideration of RMB35 billion will be paid on a deferred basis and is payable in 10 years after the date of completion of the Acquisition. Upon completion of the Acquisition, the Company will pay interest to the Parent at half-yearly intervals on the outstanding amount of the deferred consideration at an annual interest rate of 5.184% for the first five years (being the RMB lending rate as determined by the People's Bank of China for loans with tenure of more than five years, less a discount of 10%).

Thereafter, the interest rate will be adjusted accordingly on the fifth anniversary of the completion of the Acquisition. The Company is entitled to prepay all or part of the deferred consideration at any time within the 10-year period without penalty.

The Target Companies are the leading providers of wire-line telephone, data, Internet and leased line services in their respective areas. As of June 30, 2003, the Target companies had a total of approximately 45.07 million access lines in service for their local telephone service, enjoying a 98.3% market share. Along with the accelerated economic development of their respective provinces, the Target Companies have experienced rapid business growth. In the first six months of 2003, total access lines in service and broadband subscribers grew 12.9% and 108.3% respectively as compared to the end of 2002.

Mr. Zhou Deqiang, Chairman and CEO of the Company, points out that after the Acquisition, the geographic coverage of the Company's operations will be expanded to ten provinces, and total access lines in service will exceed 100 million, further consolidating the market position and competitiveness of the Company. The total population of the six provinces amounts to approximately 300 million, while the penetration rate of local telephone service is 3 percentage points lower than the national average, providing the Company with an even greater growth prospect. The Company will also manage the Target Companies with the standards as adopted in the listed arm, further enhancing the management levels and effectively improving the operating performance of the Target Companies. At the same time, the Acquisition will help optimize the Company's capital structure, lower its capital cost, and hence lead to significant EPS accretion and enhance its return on equity. Chairman Zhou believes that the Acquisition represents a new and important opportunity for the Company to benefit further from the sustained growth of the telecommunications industry in the PRC.

Completion of this acquisition is conditional upon, among other things, obtaining the approval of the Company's independent shareholders. An Extraordinary General Meeting will be held on December 15 to obtain independent shareholders' approval. Upon fulfillment of related conditions precedent, the acquisition is expected to be completed on December 31, 2003.

China International Capital Corporation (Hong Kong) Limited and Morgan Stanley Dean Witter Asia Limited are the financial advisors to the Company. JP Morgan Securities (Asia Pacific) Limited is the Independent Financial Advisor to the Independent Board Committee.

Press Enquires:

Mr. Zhao Xu
Office of Board of Directors
China Telecom Corporation Limited

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