China Telecom could command 'lofty premium' in planned Shanghai listing

Shares in US sanctioned Chinese state-owned China Telecom Corp (0728) have risen by 1.13 percent at HK$2.68 as of midday,  Wednesday, having at one point climbed by 9.8 percent to its highest in a year.

The telco had announced a plan for a second listing in Shanghai.

The carrier was pulled off the New York Stock Exchange under an executive order from former U.S. President Donald Trump, Bloomberg reports.

China Telecom proposed to issue 12 billion shares, according to a Tuesday statement to the Hong Kong stock exchange. The company didn’t disclose pricing.

The second listing will help China Telecom tap diversified financing channels in both domestic and overseas capital markets, said the statement. The domestic pivot is likely aimed at neutralizing the impact of being delisted in the U.S. along with two other major Chinese telecommunications firms in January, a decision that the firms are appealing.

As most of the carrier’s businesses are in mainland China, the Shanghai listing would give Chinese investors direct access to the company as well as improve its brand awareness in the local market, China Telecom’s Chairman Ke Ruiwen said in a post-earnings call Tuesday.

While Ke didn’t comment on whether the Shanghai listing plan was triggered by the NYSE setback, he reiterated that the American bourse’s flip-flop on the delisting decision led to stock price fluctuations in the U.S. and Hong Kong.

Under Trump, the U.S. sought to sever economic links and deny Chinese firms access to American capital, marking an escalation of the administration’s moves over tariffs as part of the trade war.

China Telecom could price its Shanghai shares at a “lofty premium” to the Hong Kong stock, Bloomberg Intelligence analysts led by Anthea Lai said in a note.

The prediction is “based on the valuation disparity between China Unicom Hong Kong and its Shanghai-listed sister company China United Network Communications,” according to the note.

China Telecom will use the listing proceeds to construct a 5G industrial Internet project and boost its cloud network, according to the statement. The wireless operator also reported a net income of 20.9 billion yuan (US$3.2 billion) for 2020, missing analyst estimates. Operating revenue grew by 4.7 percent to a better-than-expected 393.6 billion yuan.

The Shanghai listing plan is subject to approval by the Chinese Securities Regulatory Commission and there is no guarantee that it’ll proceed, the company said.