Nov 07, 2017 09:24 AM

Private Bidders Eye Stake in Citic’s Telecom Arm

Citic Group announced the sale of its stake in Citic Network in late September for at least 1.34 billion yuan. Photo: Visual China
Citic Group announced the sale of its stake in Citic Network in late September for at least 1.34 billion yuan. Photo: Visual China

Two private firms have joined the bidding war for the telecom subsidiary of China's state-owned investment conglomerate Citic Group Corp., racing to become the first private player able to tap China’s backbone broadband network operations.

Shanghai-listed Dr. Peng Telecom & Media Co. and Beijing Zhongtong Yingtian Technology Co. have submitted bids for a 49% stake in Citic Networks Co. as of the end of October, according to Beijing Equity Exchange, an equity transaction platform for state-owned enterprises.

Citic announced the sale of its stake in its wholly owned telecom unit in late September for at least 1.34 billion yuan ($202.0 million).

After the sale, Citic will still own a controlling 51% stake in Citic Networks, which provides Internet access services, as well as sells and leases satellite transponders and other telecommunication equipment.

An industry analyst said the bidders are hungry for Citic Networks’ backbone fiber optic networks and its valuable basic telecom-services license. Whoever wins the bidding war will be China’s first private broadband provider with national networks able to compete with the “big three” telecoms carriers — China Telecom, China Unicom and China Mobile.

As one of the few companies with basic telecom-services licenses, Citic Networks has been struggling with widening losses and a cash shortage. For the first half of this year, the company posted a net loss of 51.44 million yuan with a total debt of 310 million yuan and total assets of 290 million yuan. In 2016, the company had a net loss of 104 million yuan.

Citic asks for a down payment of no less than 30% of the total price for the 49% stake, with the rest to paid within a year.

Citic also requires the buyer to provide working capital for Citic Networks within three years after the deal is closed. Citic Networks is expected to have a working capital gap of 66 million yuan in 2017, 63 million yuan in 2018 and 50 million yuan in 2019. The investor will also be required to provide 270 million yuan to Citic Networks within 10 days after the 30% down payment is paid.

Dr. Peng Telecom, a Chengdu-based value-added telecom services provider that offers Internet access, network security monitoring and other services, has been a long-term business partner of Citic Network. The company had tried to acquire a 10% stake in Citic Networks in 2013, but the deal didn’t go through. The company also acquired other broadband assets from Citic Networks in 2012.

Had the 2013 deal gone through, Dr. Peng Telecom would have had the pre-emptive right to buy more stakes in Citic Networks. Since the deal failed, the company has to compete with other bidders on an equal basis, according to a person close to the transaction.

Compared with Dr. Peng Telecom, Beijing Zhongtong Yingtian Technology is a newer and smaller provider of value-added network services. But Zhongtong has proposed to close the deal with a lump sum payment.

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