HONG KONG (Reuters) - China Mobile will pay $5.8 billion for 20 percent of Shanghai Pudong Development Bank the company said on Wednesday, a move it hopes will help it dominate the country’s nascent mobile e-commerce market.
Investors and analysts have greeted the deal with skepticism, however. Since the deal was first reported in early March, China Mobile’s Hong Kong-listed shares have fallen 3 percent, erasing HK$46 billion ($5.9 billion) in shareholder value.
The company, the world’s largest mobile phone carrier, ended the day up 0.1 percent on a flat index.
“Going into e-commerce is the right direction but the investment in the bank is totally irrelevant,” said Allan Ng, a telecom analyst at BOC International. China Mobile could enter the mobile e-commerce segment through partnerships instead, he added.
Mobile e-commerce allows a mobile phone user to buy and pay for products and services via mobile phone, and is seen as a crucial future source of revenue for telecoms companies.
China Mobile, which has more than 500 million subscribers, said it would subscribe to 2.2 billion Pudong bank shares or 20 percent of the bank, for 39.8 billion yuan ($5.83 billion), and said it will jointly develop mobile finance and e-commerce business with the bank.
The mobile carrier, agreed to pay 18.03 yuan for each Pudong bank share, a discount of about 13 percent to the stock’s closing price on February 25.
Guangdong Mobile, a unit of China Mobile, will pay the total amount in cash via internal resources, and assign two representatives to serve on the board of Pudong bank as non-independent directors.
“The co-operation between China Mobile and SPD Bank signifies the aspiration of a closer integration between mobile communication and e-commerce applications,” said Wang Jianzhou, chairman of China Mobile in a statement to reporters in Hong Kong.
With the deal, mid-sized Pudong Development Bank is joining other Chinese lenders, including Bank of Communications
and China Merchants Bank, to raise cash to replenish capital bases and meet tighter capital rules.
TOO MUCH CASH?
China Mobile’s earnings per share would rise by 2 percent after the deal if nothing else changed, and based on the current earnings of Pudong bank, Wang said.
China mobile is not short of funds -- the company has more than 200 billion yuan of net cash.
“Forty billion yuan is not a lot of money for them and financially this deal is slightly positive,” said BOC’s Ng. “But if they have so much money, they should return it to shareholders.”
Before 2009, the company declined to lift its dividend in order to preserve cash to develop its 3G network in China. But now its parent had paid for the network, the listed company’s cash was sitting idle, analysts said.
China Mobile said it would not seek to increase its interest in the bank to more than 20 percent unless allowed under applicable laws and with the consent of the bank.
The company said earlier that it was also in talks about a potential strategic cooperation with the bank. China Mobile stressed however, that it had no plans to be involved in the bank’s daily operations.
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