UPDATE 4-China Mobile falls as Vodafone sells $6.5 bln stake

Wed Sep 8, 2010 8:06am EDT

Related Topics

* China Mobile block sold for HK$79.20, or 3.4 pct discount

* Stake worth a total of $6.5 billion

* CM shares see biggest daily drop in more than a year

* UBS, Goldman and Morgan Stanley handling the placement (Adds Vodafone analyst reaction)

By Kennix Chim and Alison Leung

HONG KONG, Sept 8 (Reuters) - China Mobile (0941.HK) shares fell the most in a year after Vodafone (VOD.L) sold its stake in the company for $6.5 billion, nearly double what it paid, but analysts expect the stake sale to have no major impact on the Chinese firm.

Vodafone's lock-up period on its 3.2 percent stake in the world's largest mobile carrier by subscribers recently expired, and though the company signaled it would sell, the timing had been unclear.

"We see a short term impact on the stock but in the longer term it removes the overhang," said Kelvin Ho, an analyst at Yuanta Securities.

The sale was part of Vodafone's new strategy to exit non-strategic minority investments, which analysts and investors believe have weighed on Vodafone's overall value in recent years. [ID:nTOE686080]

Vodafone has minority stakes in operators in Poland, France and India which it might also look to sell. [ID:nLDE67G18L]

China Mobile shares fell as much as 4.1 percent and closed down 3.8 percent, its biggest single day drop in more than a year. More than 740 million shares traded against an average daily volume of 21 million shares in the past 30 trading days.

Vodafone shares were down 0.4 percent in a London market .FTSE up 0.3 percent. The company said it plans to return most of the proceeds to shareholders and repay some debt.

Analysts welcomed the disposal, which came earlier than expected, but said the announcement may focus investors attention on other assets such as the 44 percent holding in France's SFR and the 45 percent stake in Verizon Wireless.

Both of those will be harder to sell because there is only one buyer in each case.

"The China Mobile exit is unlikely to soften pressure on management to also deliver on other asset sales," Jefferies analyst Jerry Dellis said. "Expect focus on SFR to intensify."

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Vodafone's stake sale story: [ID:nTOE686080]

DEALTALK on Vodafone's investments: [ID:nLDE67G18L]

BREAKINGVIEWS on Vodafone: [ID:nLDE6050VF]

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CHINA GROWTH SLOWS

The bidding process for the shares began on Tuesday and a banking source told Reuters the books for the share placing closed earlier on Wednesday and the stock allocation was still taking place.

Despite China's position as the world's biggest mobile market with nearly 800 million subscribers, growth for China Mobile and its rivals, China Unicom (0762.HK) and China Telecom (0728.HK), has been slowing as revenue from voice calls declines amid increasing cellphone penetration rates.

"China Mobile and Vodafone have established close co-operation in business and technology areas since 2000. Both side will continue to cooperate in these areas in the future," China Mobile said in a statement.

Last month, China Mobile reported a 7 percent rise in quarterly net profit to 32 billion yuan. [ID:nTOE67F03P]

"China Mobile's prospects depend on when it is going to get a go-ahead for LTE," said Eric Wen, an analyst at Mirae Asset Securities.

Long Term Evolution (LTE), the evolution of its current 3G networks, is not expected to boost sales significantly, but will lower operating and expansion costs.

China Mobile aims to launch LTE in 2012, analysts said.

Telefonica SA (TEF.MC) has about 8.4 percent of China Unicom and said in June it would raise its stake in the Chinese company to 10 percent this year.

SHARE PLACING

Vodafone, the world's largest telecommunications operator by revenue, was selling 642.9 million China Mobile shares at HK$79.20 each, representing a 3.4 percent discount to the stock's last close of HK$82 on Tuesday, according to a term sheet. That was the low end of the range that underwriters gave for the sale.

UBS, Goldman Sachs and Morgan Stanley were handling the placing.

The shares were selling to institutional investors in Asia, Europe and the Middle East, sources said, without identifying any buyers.

Goldman Sachs analysts said Vodafone's share sale came a bit earlier than expected. The investment bank maintained its buy rating and target price of HK$93 for the stock after the deal. ($1 = HK$7.8) (Additional reporting by Kate Holton in London; Editing by Michael Flaherty and Anshuman Daga)

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