China Mobile Ltd shares may fall in Hong Kong trading on concern the world's biggest phone company by value is deviating from its main business by considering an investment in Shanghai Pudong Development Bank Co.
"Shareholders will take this negatively," said Bertram Lai, who rates China Mobile shares "neutral" at CIMB-GK Securities in Hong Kong. "It doesn't make sense for the management to be using funds this way. They should be returning it to shareholders."
China Mobile Chairman Wang Jianzhou said Wednesday the possible investment in Pudong Bank will help the carrier build its electronic commerce business and lift earnings as mounting competition slows profit growth. The transaction would help replenish capital at the Shanghai-based lender after Chinese banks extended a record 9.59 trillion yuan ($1.4 trillion) of credit last year.
"You don't need to buy a bank to get into mobile banking. They should just stick to what they do," said Christopher Wong, a fund manager at Aberdeen Asset Management, which manages $45 billion of assets, including China Mobile shares, in the Asia excluding Japan region. "We'll be disappointed if this goes through. This is not what they do."
Pudong Bank, part-owned by Citigroup Inc, said Wednesday in a Shanghai stock exchange filing that talks on a possible investment by China Mobile are under way. Wang said a deal will lift China Mobile's earnings per share as support from a financial firm helps it expand in e-commerce, a market dominated domestically by Alibaba Group Holding Ltd.
Trading Halted
China Mobile, which had 256 billion yuan ($37.5 billion) of cash at the end of June according to its interim earnings report, may buy 2.2 billion Pudong Bank shares for 17.82 yuan apiece, Guotai Junan Securities Co. analyst Wu Yonggang wrote in a note last week, without citing anyone. That's 14 percent lower than the stock's closing price before trading was halted on Feb. 26 pending an announcement about a strategic investment.
China Mobile fell 2.4 percent to HK$74.65 ($9.60) Wednesday in Hong Kong before the company's official announcement of the talks, underperforming the benchmark Hang Seng Index for a fourth consecutive session.
The phone carrier, with a market capitalization of HK$1.5 trillion as of Wednesday, hired China International Capital Corp. as its financial adviser, two people involved in the talks said, asking not to be identified because of confidentiality agreements.
Underperforming Shares
"Any investment will help increase our earnings per share," China Mobile's Wang told reporters in Hong Kong during a teleconference Wednesday from Beijing. The carrier needs "deep support" from a financial firm to develop its electronic commerce and payment business, he said.
Alipay, owned by Hangzhou, East China-based Alibaba Group, controls almost 60 percent of China's online-payment market, according to its Web site. Chinese consumers bought more than 180 billion yuan of goods and services on the Internet last year, according to Fang Meiqin, research director at BDA China Ltd, a Beijing-based telecommunications industry consultant.
The value of e-commerce transactions settled using mobile handsets will probably increase to more than 7 billion yuan by 2013, according to BDA.
"It will become much more convenient for China Mobile to offer electronic payment services if they have an alliance with a bank," said Fang. "In China, technology companies don't have the necessary licenses to offer financial services."
A deal with Pudong Bank wouldn't undermine China Mobile's ability to partner with other lenders, Wang said.
Calling the Shots
"I don't know what strategically that would provide to China Mobile," CIMB's Lai said. "As the leading player in the market, they can theoretically call the shots and partner with anybody."
China Mobile wouldn't be alone in investing in financial firms. South Korea's SK Telecom Co last year agreed to buy a stake in Hana Financial Group Inc's credit-card unit for 400 billion won ($349 million), while Globe Telecom Inc. in the Philippines agreed to buy 40 percent of BPI-Globe BanKO Savings Bank in 2008. Nokia Oyj, the world's biggest maker of mobile phones, last year bought a minority stake in Obopay, a supplier of mobile banking services in the US and India.
China Mobile started allowing some users to pay bills with their handsets last year, and began providing other services such as mobile television and electronic readers, Chairman Wang said in November. The company is expanding its range of value- added services as competition intensifies with rivals China Telecom Corp and China Unicom (Hong Kong) Ltd.
Stimulus Package
Pudong Bank, with 491 outlets nationwide, is seeking to boost financial strength after expanding loans by 30 percent in the first nine months of last year to support China's 4 trillion yuan economic stimulus package. The Shanghai-based lender in September raised 15 billion yuan in a private placement to ensure it has enough capital to meet loan demand and regulatory requirements.
China Mobile Communications, which owns 74 percent of Hong Kong-listed China Mobile, bought a 19.9 percent stake in Phoenix Satellite Television Holdings Ltd. in 2006. A year later, the phone company acquired Paktel Ltd, a wireless carrier in Pakistan, its first purchase outside Chinese territories.
