Opinion: Old-School Chinese Tech IPO Bedeviled by Startups

China’s new economy is bedeviling the old one. Valuation expectations have fallen for China Tower, just as they did for smartphone maker Xiaomi. The techlash is bringing at least some sense back to the market.

China Tower was formed in 2014 by the country’s three big telecom operators to pool their mobile masts and other infrastructure. After the decision to go public in Hong Kong was unveiled in May, analysts at Goldman Sachs, one of the lead sponsors of the initial public offering, projected a market value of between $40 billion and $50 billion. A fresh report by Thomson Reuters publication IFR says the top end of the range is now $35 billion.

Jittery markets and a string of disappointing Chinese tech listings are at least partly to blame. The Hang Seng index is down 6 percent this year. Ping An Healthcare and Technology shares slipped below their May IPO price while China Literature’s have come a long way down from their peak. The debut of Xiaomi – which similarly had been gunning for a $100 billion valuation earlier in the year only to wind up at half as much – also suggests investors are indicating greater caution to issuers and bankers.

The latest target for China Tower sounds uncommonly reasonable. At a $35 billion market value, plus some $13 billion in net debt, the state-controlled enterprise would be valued at about eight times last year’s EBITDA. That puts it closer to India’s Bharti Infratel, at nearly nine times, and at a steeper discount to Indonesia’s Tower Bersama, which trades at about 13 times.

Monopoly status and cornerstone investors should help underpin the IPO. But China Tower is at the mercy of any policy changes implemented by Beijing. Its owners are also its biggest customers. The company, for example, just agreed to lower leasing costs for China Mobile, China Telecom and China Unicom. China Tower’s deals are also structured so that it bears all the risk of changes to the value of the masts.

Sobering fundamentals sometimes get overlooked during an industry frenzy. The tech startup signals have changed, however, and are making China Tower come in a bit clearer.

On Twitter https://twitter.com/AlecMac11

CONTEXT NEWS

– China Tower, the world’s biggest operator of telecommunications towers, is planning to raise about $8.8 billion from its Hong Kong initial public offering at a valuation of up to $35 billion, Thomson Reuters publication IFR reported on July 18, citing unnamed people close to the deal.

– The company is talking to potential cornerstone investors ahead of the offering and planning to sell around 25 percent of its enlarged share capital, according to IFR.

– China Tower is scheduled to begin taking orders for shares on July 23 and to price the offering on Aug. 1.

– The company was set up in 2014 by China Mobile, China Telecom and China Unicom, the country’s three state-backed telecoms operators, which later pooled their tower assets into the new business.

– China International Capital Corp and Goldman Sachs are joint sponsors of the IPO.

– For previous columns by the author, Reuters customers can click on

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(Editing by Jeffrey Goldfarb and Katrina Hamlin)

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