China Telecom to Acquire Assets from its Parent for an Equity Value of RMB27.8 Billion (US$3.4 Billion)
13 Apr 2004
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 Telecommunications Corporation, the Company's controlling shareholder (the "Parent"), 10 provincial telecommunications operations (the "Acquisition"). The Company will acquire the entire equity interests in Hubei Telecom Company Limited, Hunan Telecom Company Limited, Hainan Telecom Company Limited, Guizhou Telecom Company Limited, Yunnan Telecom Company Limited, Shanxi Telecom Company Limited, Gansu Telecom Company Limited, Qinghai Telecom Company Limited, Ningxia Telecom Company Limited and Xinjiang 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 has agreed, subject to certain conditions, to acquire from the Parent the Target Companies for a purchase price of RMB27.8 billion (approximately US$3.4 billion) . The net indebtedness of the Target Companies as of December 31, 2003 amounted to approximately RMB40.0 billion (approximately US$4.8 billion). The purchase price will consist of payment of an initial cash consideration and a deferred consideration.
The initial cash consideration of RMB8.34 billion will be satisfied on completion of the Acquisition by payment in RMB or any foreign currencies in equivalent amount.
The deferred consideration represents the difference between the purchase price and the initial consideration and amounts to RMB19.46 billion. The deferred consideration is payable 10 years after completion and the Company is entitled to prepay all or part of the deferred consideration at any time within the 10-year period.
From the date of completion of the Acquisition, the Company will pay interest to the Parent at half-yearly intervals on the actual amount of deferred consideration remaining outstanding. For the first five years after completion of the Acquisition, interest will be payable at the rate of 5.184% per year (being the RMB lending rate of commercial banks in the PRC in respect of loans with tenure of more than five years as published by the Peoples Bank of China, less a discount of 10%).
Thereafter, the interest rate will be adjusted accordingly on the fifth anniversary of completion of the Acquisition.
The Target Companies are the leading providers of wire-line telecommunications services including wireline telephone, Internet, managed data and leased line services in their respective service areas. As of December 31, 2003, the Target Companies had a total of approximately 42.9 million access lines in service for their local telephone service, enjoying a 95.5% market share. Along with the accelerated economic development of their respective provinces, the Target Companies experienced fast business growth. In the year of 2003, total access lines in service and broadband subscribers grew 18.3% and 198.2% 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 expand to 20 provinces, and total access lines in service will exceed 160 million, further enhancing the market position and competitiveness of the Company. The total population of the service areas of the Target Companies amounts to 311 million, while the penetration rate of local telephone service is 5.9 percentage points lower than the national average, providing the Company with even greater growth prospect. The Company will, upon the completion of the Acquisition, manage the Target Companies based on the standards applied in the Company to further enhance the management levels and improve operation efficiencies of the Target Companies. 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 the Acquisition is conditional upon, among other things, obtaining the approval of the Company's independent shareholders on the Acquisition and the respective approval of the shareholders, holders of H shares and holders of domestic shares on the New Issue pursuant to Shareholders Circular dated March 17, 2004.
China International Capital Corporation (Hong Kong) Limited, Morgan Stanley Dean Witter Asia Limited and UBS AG are the financial advisors to the Company. JP Morgan Securities (Asia Pacific) Limited is the independent financial advisor to the independent board committee.
Forward-Looking Statements
This document contains certain statements which may be viewed as "forward-looking statements" within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended.
These forward-looking statements are subject to risks, uncertainties and other factors, many of which are beyond our control. The actual performance, financial condition or results of operations of China Telecom Corporation Limited ("the Company") may differ materially from those expressed or implied by these forward-looking statements.
Because of these risks, uncertainties and other factors, certain forward-looking events and circumstances discussed in this document might not occur in the way we expect, or at all. You should not place any undue reliance on any forward-looking statements contained in this document. Further information regarding these risks, uncertainties and other factors can be found in the Company's most recent annual report filed on Forms 20-F and 6-K with the U.S. Securities and Exchange Commission.
Press Enquires:
Mr. Zhao Xu
Office of Board of Directors
China Telecom Corporation Limited
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