China Mobile Buys New Networks - Secures Vodafone Investment

China Mobile (Hong Kong) (CMHK) has signed a conditional sale and purchase agreement to acquire a 100% equity interest in eight GSM networks from its controlling shareholder, China Mobile Hong Kong (BVI). The eight networks are Anhui Mobile Communication Co., Jiangxi Mobile Communication Co., Chongqing Mobile Communication Co., Sichuan Mobile Communication Co., Hubei Mobile Communication Co., Hunan Mobile Communication Co., Shaanxi Mobile Communication Co. and Shanxi Mobile Communication Co.

CMHK will pay a total of US$8.573 billion to acquire the entire equity interest in each of these eight mobile communications companies, and will assume the total net debt (long term and short term bank loans and other borrowings less cash and cash equivalents) of these eight companies. As of December 31, 2001, these companies had a total net debt of approximately US$1.627 billion. Taking into account the above net indebtedness and the total purchase price of the acquisition, the enterprise value of the eight target companies is US$10.2 billion.

As of December 31, 2001, the target companies had a total number of subscribers of 20.93 million with an average market share of approximately 74%. Despite the large subscriber base and the substantial growth experienced by these mobile companies in recent years, the cellular penetration rates in the eight regions, averaging 6.8% as of December 31, 2001, are still low compared to those of other more mature international markets and the more economically advanced coastal regions in Eastern China, reflecting substantial growth potential.

Of the total purchase price, CMHK will pay to China Mobile Hong Kong (BVI) upon completion of the acquisition, the equivalent of US$3.15 billion in cash and US$2.623 billion in shares as the initial payment, for an initial consideration totaling US$5.773 billion. Payment for the balance, amounting to US$2.8 billion will be structured as a deferred consideration. The deferred consideration is payable 15 years after the completion of the acquisition, or earlier if market conditions permit the issuance of new debt in the Chinese financial markets. CMHK intends to finance the cash portion of the initial consideration by using approximately US$2.4 billion from its existing internal cash resources and the proceeds from a new Vodafone investment.

Vodafone has said that it is to pay US$750 million in order to increase its holdings in China Mobile from 2.18% to approximately 3.27%. Following the move, Vodafone will have the contractual right to appoint one non-executive director to China Mobile's Board. Sir Christopher Gent has been an independent non-executive director of China Mobile since February 2001 at China Mobile's invitation and it is expected that he will continue to hold this position. Following the completion of the further network acquisitions, Vodafone's holding will fall slightly back to 3.27%. Vodafone originally paid US$2.5 billion for its initial stake in October 2000.'"

Posted to the site on 17th May 2002