China Telecom, the country’s third largest mobile operator, has said it will buy the CDMA network held by its parent company for an initial consideration of Yn84.6bn (US$13.3bn).
With this transaction, the company is looking to eliminate “the…
China Telecom, the country’s third largest mobile operator, has said it will buy the CDMA network held by its parent company for an initial consideration of Yn84.6bn (US$13.3bn).
With this transaction, the company is looking to eliminate “the rapidly rising lease fee to significantly improve EBITDA” as well as gain direct control over future CDMA network investment decisions.
The carrier is reportedly leasing the bandwidth and infrastructure from its parent for Yn19bn a year, and this fee will likely increase in the future as the number of 3G subscribers is rising.
China Telecom said the acquisition is expected to be completed on 31 December 2012 and is subject to a price adjustment of no more than Yn3bn (US$472m).
Funded with the company’s internal resources and debt financing, Yn25.5bn (US$4bn) of the final consideration will be paid within five business days of the completion date. The balance will be payable on or before the fifth anniversary of the completion date.
As of 31 March 2012, the book value of the CDMA network was Yn111.2bn (US$17.5bn) and associated liabilities amounted to Yn30bn (US$4.7bn).
UBS is advising the mobile operator on the transaction, which is subject to regulatory and shareholder approvals.
With approximately 135 million subscribers as of March 2012, China Telecom is the smallest of the country’s three operators. It competes with China Mobile and China Unicom.
For H1 2012, the company reported increased operating revenues of Yn138bn (US$21.7bn) as compared with Yn120.2bn (US$19bn) in H1 2011. But its net profit fell to Yn8.8bn (US$1.4bn) against Yn9.6bn (US$1.5bn) in the first half of last year.
