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China Mobile opens 9% higher after $8 billion Shanghai share sale

Telecom operator takes lessons from rival's disappointing market performance

China Mobile opens 9% higher after $8bn Shanghai share sale

Shares of China Mobile opened 9.4% above their sale price as the telecommunications operator made its debut on the Shanghai Stock Exchange on Wednesday in what is shaping up to be the biggest domestic listing in more than a decade.

After being forced off the New York Stock Exchange in May, the world’s biggest telecom operator in terms of subscribers raised 48.7 billion yuan ($7.6 billion yuan) by selling new shares in Shanghai at 57.58 yuan.

Trading began on Wednesday at 63 yuan. In Hong Kong, meanwhile, its shares rose 7.3% to HK$51.50 following the company’s overnight announcement that next month it will launch a previously approved program to buy back as much as 10% of its outstanding shares.

Investment bank Jefferies forecast that China Mobile would buy back 5 billion Hong Kong dollars ($641.41 million) to HK$10 billion this year, as well as increase its dividend payout.

While still listed in Hong Kong, China Mobile lost its place on the NYSE after being placed on an investment blacklist by the White House due to alleged military links, which have been denied by the operator.

In the opening ceremony held at the Shanghai exchange, China Mobile Chairman Yang Jie said the listing had “created a capital operation platform both domestically and externally.” He vowed that the company would continue to be at the “core” of new smart infrastructure in China and would help to build a powerful digital economy.

If China Mobile fully utilizes an option to upsize the share sale to 56 billion yuan, this would make it the largest debut on the domestic market since Agricultural Bank of China raised 68.5 billion yuan in 2010.

Rival China Telecom sold 47.9 billion yuan in new shares last August when it listed in Shanghai after also being ejected from the NYSE. Semiconductor Manufacturing International Corp. (SMIC) raised 53.2 billion yuan in its homecoming listing in 2020.

China Telecom closed up 34.9% on its debut, after briefly gaining the maximum 44% allowed on the first day. It has largely traded below its IPO price since then.

China Mobile appears to be aiming to top its rival’s performance.

China Mobile’s share sale price represented a multiple of 12 times the company’s proportional 2020 profits and an even smaller multiple of the 114.3 million yuan to 116.46 million yuan in net profit it has signaled it expects to report for 2021. China Telecom priced its offering at more than 20 times its year-earlier profits.

In addition, China Mobile’s newly issued stock will represent no more than 4.5% of its overall share base once the sale is complete, as compared with 11% for China Telecom.

China Mobile received orders for more than 800 times the shares offered in its sale, as compared with a multiple of 180 for China Telecom.

Moreover, nearly half of China Mobile’s new shares have been allotted to 19 strategic investors who will be barred from trimming their stakes for one to three years. The group is mostly composed of state-owned enterprises, including China Life Insurance and a unit of China Energy Investment Corp., as well as the Brunei Investment Agency and Chia Tai Investment, a subsidiary of Thai tycoon Dhanin Chearavanont’s CP Group. Nine of the investors also bought into China Telecom’s share sale.

China Mobile took the spotlight as the first debut of the new year on the domestic market allowed by regulators. Two companies are to list later in the week, in Shanghai and Beijing.

Stephen Leung, an analyst at Crosby Securities in Hong Kong, rates China Mobile as a “buy,” highlighting the potential for still more generous dividend payments in the future.

He noted in a recent report that the company has been generating over 100 billion yuan in free cash flow a year and expects to continue to do so for the next few years. “The rich cash resources also pose upside risk to payout,” he said, adding, “The A-share issue is more for returning to the homeland than raising cash.”

China Mobile is one of the most cash-rich Chinese companies around, recording 274.14 billion yuan of cash and equivalents as of June 30.

Recent listing rule changes paved the path to Shanghai for China Mobile which as a “red chip” company incorporated outside the mainland previously faced obstacles. Beijing has been keen to bring home major Chinese companies even as Washington has made them less welcome on U.S. markets amid bilateral tensions.

China Mobile made only a brief mention of its U.S. delisting in its 473-page Shanghai prospectus. Chairman Yang told reporters and analysts earlier that the purpose of the offering is to “share the profit of growth with our wide range of users and to harmonize the profits of investors and consumers.”

Most of the company’s 956.78 million mobile subscribers are in China.

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