August 7, 2017 / 7:20 AM / 2 years ago

Signals are good for China Tower IPO

Power transmission towers are seen on the outskirts of Islamabad, Pakistan April 10, 2017. REUTERS/Caren Firouz

HONG KONG (Reuters Breakingviews) - The signals are good for a huge telecoms infrastructure listing. China Tower, owner of the world’s biggest collection of telecoms towers, is preparing an initial public offering in Hong Kong of up to $10 billion, Reuters says. At the right price, it should be well received.

The company was set up in 2014 by the country’s big three phone companies, China Mobile (0941.HK), China Unicom (0762.HK) and China Telecom (0728.HK). The trio pooled their telecom towers, in a sensible bid to stop duplication in a capital-intensive industry, and to bring in fresh private capital.

Earlier this year, Goldman Sachs analysts estimated the business was worth nearly $54 billion including debt. Their calculation assumes a 30 percent discount to international rivals, similar to the markdown investors place on Chinese telecoms. Industry heavyweight American Tower (AMT.N) has an EV of more than $79 billion.

Unlike the recent, uninspiring IPOs of Chinese state-owned banks, China Tower ought to lure more international investors. In general, the sector offers stability and high yields, and has spawned dedicated investment funds.

China Tower can point to a couple of strengths. First, the explosion in mobile data promises growth. It is rolling out the infrastructure that will power fourth-generation, or 4G, fast mobile broadband. The advent of even faster 5G technology will mean yet more business from the network operators. Goldman’s analysts said China Tower has significantly higher potential for earnings growth than foreign rivals.

Graphic: China Tower owns 12 times more telecoms towers than its nearest rival:

Second, it has an unusually strong market position, with more than 95 percent of China’s towers, according to Morgan Stanley. So while it is still highly dependent on just three customers, who are also shareholders, it is at little risk of being undercut by competitors.

This will nonetheless take some selling. There are no listed peers in this market, so local investors will need to get up to speed on industry dynamics. Analysts also say lease fees look low, and depreciation seems high, by international standards – two issues prospective buyers will need to understand. Still, if China Tower can communicate effectively, this debut should go well.


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