March 10 (Bloomberg) -- China Mobile Ltd., the world’s biggest phone company by market value, agreed to buy 20 percent of Shanghai Pudong Development Bank Co. for 39.8 billion yuan ($5.8 billion) to expand its electronic-payment business.
The carrier’s Guangdong Mobile unit plans to buy 2.21 billion new China-listed shares for 18.03 yuan apiece, according to a statement to the Hong Kong stock exchange today. That’s 13 percent lower than the bank’s last-traded price.
China Mobile and Pudong Bank will form a strategic alliance to offer wireless finance services including mobile bank cards and payment services, the statement said. The phone company’s shares have underperformed the benchmark Hang Seng Index since Feb. 26, when trading in the lender was halted, on concern the operator is deviating from its main business.
“This is not something we’d prefer,” said Pauline Dan, chief investment officer at Samsung Investment Trust, which oversees $80 billion in assets, including China Mobile shares. “From a return perspective, it’s much better for the company to return the cash to shareholders.”
The Beijing-based carrier rose 0.1 percent HK$74.15 in Hong Kong trading today before the announcement. The stock has lost 3.2 percent since Feb. 26 when Pudong Bank shares were suspended at 20.74 yuan pending the announcement.
For Pudong Bank, the deal will help it replenish capital after Chinese banks extended a record 9.59 trillion yuan of credit last year.
Wireless Banking
China Mobile is valued at $193 billion as of today, compared with $151 billion for AT&T Inc., the world’s second- largest phone company. China Telecom Corp., the next-biggest Chinese carrier is valued at $36.6 billion. Pudong Bank is worth $26.8 billion.
Pudong Bank “is just the right size,” China Mobile Chairman Wang Jianzhou told reporters in Hong Kong in a video conference. “If a bank is very big, an investment will give us only a very small stake; if the bank is too small, it may not have the necessary scale,” he said.
The purchase will make China Mobile the second-biggest shareholder in the bank after Shanghai International Group, according to the statement.
The investment presents China Mobile a platform to offer wireless-banking services to more than 527 million customers in the world’s fastest-growing major economy. The Hong Kong-listed company had 256 billion yuan of cash at the end of June, according to its interim report in August.
Shares in the carrier fell to a two-month low on March 4, a day after the company confirmed it had begun talks to buy the Shanghai Pudong stake.
‘Totally Unrelated’
“The part of the business they are targeting is very nascent, so it may have an advantage in it, but it’s not clear how big the market will be,” said Daniel Baker, who rates China Mobile shares “hold” at Mirae Asset Securities in Hong Kong. The deal is expected to “slightly” increase China Mobile’s earnings per share because “they are paying this with cash that would otherwise be sitting in their bank account.”
The phone carrier is “going into something that is totally unrelated to what they are doing right now,” said Samsung Investment’s Dan.
The Pudong Bank investment should be regarded as an extension of China Mobile’s main telecommunications business, Wang said. The carrier won’t consider investments in other industries such as energy and property, he said.
“China Mobile is very much focused on telecommunications operations,” Wang said.
China Mobile started allowing some users to pay bills with their handsets last year, and began providing other new services such as mobile television and electronic readers, 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.
Stake Purchases
China Mobile joins South Korea’s SK Telecom Co. and the Philippines’ Globe Telecom Inc. in investing in financial firms.
SK Telecom last year agreed to buy a stake in Hana Financial Group Inc.’s credit-card unit for 400 billion won ($354 million), while Globe Telecom Inc. 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 U.S. and India.
Pudong Bank, with 491 outlets nationwide, is seeking to boost financial strength after expanding loans by 30 percent in the first nine months last year to support China’s 4 trillion yuan economic stimulus package. Pudong Bank in September raised 15 billion yuan in a private placement to ensure it has enough capital to meet loan demand and regulatory requirements.
‘Special Vehicle’
China Mobile has set up a “special vehicle” to carry out its proposed investment in Far EasTone Telecommunications Co., Wang said. The Chinese company, which agreed last year to pay as much as NT$17.8 billion ($561 million) to buy a 12 percent stake in the Taipei-based carrier, still awaits regulatory clearance from Taiwanese authorities to complete the purchase, he said.
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, for its first purchase outside Chinese territories.
China Mobile is focused mainly on overseas phone assets as it surveys potential acquisition opportunities, Wang said.
--Editors: Mark McCord, Suresh Seshadri, Robert Valpuesta.
To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
