Corporate Finance : Global Depositary Receipts

ASIA

China Telecom Issue Poorly Received in US

 

 

China Telecom slashed the size of its initial public offering by more than half in the face of weak investor demand, but the IPO was still the fifth-largest new issue of 2002. Despite the big reduction, the offering received a poor reception from US investors.

China’s biggest fixed-line phone company, China Telecom managed to raise $1.4 billion by selling a 10% stake in the company. It said the net proceeds would be used to expand telecom networks, improve services and develop new technologies.

China Telecom’s Ameri-can depositary receipts, which were listed on the New York Stock Exchange, fell 5.4% in their Novem-ber 14 debut from the $18.98 offering price.The company was prevented from offering the stock for less than it did because of a Chinese government reg-ulation that prohibits state-owned companies from selling stock for less than the value of their net assets per share.

The dual-listed issue fared relatively better in Hong Kong, where it slid 2% below its offer price on its debut. Retail demand was stronger in Hong Kong than in New York, where 95% of the shares were allocated to institutional investors.

Morgan Stanley, Merrill Lynch and China Interna-tional Capital brought the IPO to market.The Bank of New York was selected as depositary for the ADR program. One ADR repre-sents 100 H shares, which are traded on the Hong Kong Stock Exchange.

China Telecom is the No. 1 provider of fixed-line telephone, data and Internet services in four of China’s most economi-cally developed regions. It serves the municipality of Shanghai and the provinces of Guangdong, Jiangsu and Zhejiang.

The company was forced to re-jigger its dual-listing stock plan after the international portion ini-tially failed to attract suffi-cient investors.The domestic offering was fully subscribed on the first go around but was also re-launched.

China Telecom announced an eight-fold increase in connection fees for international calls to woo global investors and also offered to increase its dividend. Last year alone China Telecom wired 20 million homes and busi-nesses. But fixed-line rev-enue is growing only 2% to 3% annually, and the gov-ernment is pressuring the company to extend cover-age to rural areas, where the cost of building net-works is higher.

Another fixed-line car-rier, China Netcom, is expected to go public in 2003, and additional stock offerings are likely from China Mobile and China Unicom, which operate in the more-lucrative wire-less sector.

China Telecom became the first Chinese telecom to start business in the United States when it opened a subsidiary in Washington, DC, on November 4, 2002. Zhang Weihua, head of China Telecom (USA), says it aims to create seamless commu-nications links between US companies and their Chi-nese subsidiaries.

Taiwan Screen Maker Issues $54 Million

Taiwan-based Wintek, which makes flat-screen liquid crystal displays and modules as well as portable games and calcu-lators, issued $54 million of global depositary receipts. One GDR is equivalent to five common shares.

The company plans to use the proceeds for the purchase of raw materials and for indirect investment in China. Bank of New York was selected as depositary.

The issue was two times oversubscribed, with an approximate geo-graphic breakdown of 50% Asia, 40% Europe and 10% United States.

Nomura International was the sole lead manager and sole bookrunner for the transaction.The GDRs are quoted on Seaq Inter-national of the London Stock Exchange and are listed on the Luxembourg Stock Exchange.

ADR PROGRAMS THAT BECAME EFFECTIVE IN NOVEMBER 2002
Issue Symbol Exchange Country Depositary
China Telecom
CHA NYSE China Bank of New York
Lukoil OAOLYP Portal Russia Bank of New York
Reliance Ports & Terminals
N/A Private India Bank of New York
Ukrtelecom N/A Private Ukraine Bank of New York
Uralsvyazinform UVYPY OTC Russia JPMorgan
Wintek WNTKYP Portal Taiwan Bank of New York


THE AMERICAS New ETFs Track Depositary Receipts

Nasdaq Financial Products Services and the Bank of New York introduced a family of exchange-traded funds based on depositary receipts.The BLDRS, or baskets of listed depositary receipts, consist of four separate investment port-folios based on the bank’s ADR indexes.They are the first ETFs listed on Nasdaq.

Nasdaq Financial Prod-ucts Services, the sponsor of the funds, is owned by the Nasdaq Stock Market. The Bank of New York will serve as trustee and index provider.

BLDRS Funds hold a portfolio of exchange-traded deposi-tary receipts that can be bought and sold through-out the day, similar to shares of stock. Investors are able to pur-chase shares on margin and to sell them short.

The investment objec-tive of each fund is to provide results that corre-spond generally, before fees and expenses, to the price and yield perfor-mance of depositary receipts in a particular geographic region or mar-ket.The funds currently comprise two market index funds for emerging and developed markets and two regional index funds covering Europe and Asia.According to the Bank of New York, the funds offer a low-cost way to invest overseas, with a 0.3% cap on expenses.

EUROPE Russian Telecom Launches ADRs


Uralsvyazinform, Russia’s second-largest regional telecom, has launched a sponsored ADR facility traded on the US over-the-counter market for its pre-ferred shares.The issuer, a unit of Svyazinvest Group, provides communication services to 3 million peo-ple in 4,225 cities and towns in the West Urals region.The company offers fixed-line and mobile telephone services as well as Internet con-nections and paging.

Separately, Ukrtelecom, the national telecommuni-cations operator in the Ukraine, made a private placement of ADRs in the United States, the Bank of New York announced.

 

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Gordon Plat

 

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