China Unicom stock falls amid parent firm rumor

Updated: 2008-02-26 07:18

By Hui Ching-hoo(HK Edition)

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Shares of China Unicom plunged significantly yesterday on a rumor that its parent firm - Shanghai-listed China United Telecommunications Co - is planning to list and sell more shares.

Separately, speculation of delays in the long-awaited restructure of the mainland's telecom sector also helped drag down China Unicom share prices by 4.7 percent. They closed at HK$17.40 yesterday.

 China Unicom stock falls amid parent firm rumor

A man uses his cell phone while walking past a China Unicom service center. Shares of China Unicom Ltd fell sharply yesterday on speculation of a massive new share offer by its parent company. Bloomberg News

The company is the smaller of two mobile-phone-service operators on the mainland, behind China Mobile.

China United's shares, which are traded in Shanghai, fared considerably worse, falling beyond the daily trade limit of 10 percent.

The speculation is that China United plans to issue new shares in a bid to raise between 60 and 70 billion yuan, but China Unicom spokeswoman Sophia Tso said that wasn't true.

"This is purely a rumor. The company does not have a new share-issue plan," she told Reuters.

As for the delay in the sector's restructuring, word is that no annoucement on the plan will be released until after the National People's Congress meeting next month.

The news dealt a further blow to China United, which is expected to benefit from the industry reshuffle.

"Institutions are selling heavily. It appears to be related to the industry-restructuring issue," said Zhang Yanbing, analyst of Zheshang Securities.

The news also pushed down the prices of other mainland telecom stocks yesterday. Hong Kong-listed China Mobile dipped 0.5 percent to close at HK$115.50.

A DBS Vickers report attributed the China Unicom plunge to its overvalued share prices, calling the drop of its share prices a normal correction.

The report gave a "hold" rating to China Unicom with a target price of HK$17.99.

Tung Tai Securities Associate Director Kenny Tang said mainland telecom stocks would inevitably be affected by restructuring delays, but it's a short-term drop.

"We believe the impact is limited since the reform will be implemented sooner or later this year," Tang said. "Shares of China Unicom will regain the ground when the reform schedule is finalized."

Tang said the telecom shares will stay volatile until the new policy is set.

Speculation of the mainland telecom restructure speculation has long lingered in the market.

A likely proposal will be for China Telecom to acquire the CDMA assets of China Unicom, while China Unicom merges with China Netcom. As part of the proposal, China Mobile may acquire China Tietong.

Analysts said the central government hopes to use the measures to balance the competitiveness among all players.

(HK Edition 02/26/2008 page2)