Deals

Shuli Ren is a Bloomberg Gadfly columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Beijing's new "national team" is riding to the rescue.

China United Network Communications Ltd., the Shanghai-listed arm of the country's second-largest wireless carrier, is set to get a 78 billion yuan ($11.7 billion) injection from a consortium of companies ranging from tech giants to the state-owned bullet-train maker.

Tencent Holdings Ltd., Baidu Inc., Alibaba Group Holding Ltd. and JD.com Inc. will together invest 27 billion yuan, while even the taxi-hailing service Didi Chuxing will join the party. Among investors in what is widely acknowledged as the weakest of China's three state-owned telecom firms will be CRRC Corp., the train manufacturer, and China Life Insurance Co. In all, the mobile-phone operator has managed to lock in 14 shareholders.

In keeping with China's much-vaunted overhaul of government enterprises, Unicom said the introduction of private capital will help it set up a "more efficient and market-oriented operating mechanism."

Quite a Lineup
China Unicom will receive 78 billion yuan from 14 investors
Source: Bloomberg News

But can the new investors actually craft a (still state-controlled) entity that's able to hire and fire workers and make fast strategic decisions? After this so-called mixed-ownership reform is done, the 14 will theoretically have equal ownership with the government of Unicom's A shares. Several of these firms are bitter competitors, however, so the potential for inter-investor squabbling is great.

Equal Footing
The 14 new strategic investors will have same stake in Unicom A-shares as the government
Source: Company presentation

The deal mirrors another SOE restructuring three years ago. Then, China Petroleum & Chemical Corp. raised $17.5 billion for its gas-station-to-retail chain from 25 companies, ranging from Fosun International Ltd. to China Life Insurance to -- them again -- Tencent.

The hope was that the oil giant, known as Sinopec, would list that business and give those shareholders an exit. More than midway through 2017, there's no sign that's happening. With 25 investors, it probably goes without saying that no single company would have a meaningful say in the marketing unit's day-to-day operations. 

More Cash Than Sense
The four big Chinese tech firms investing in Unicom are sitting on nearly half a trillion yuan in cash on their balance sheets
Source: Bloomberg

It's unclear how the Unicom investment happened, but there's a better than even chance that the cash-rich tech giants were asked to cough up. While their cash pile ballooned, Unicom's net debt has risen by 20 percent in the last five years to 150 billion yuan amid spending on mobile network upgrades, and the company still faces a very expensive rollout of 5G -- a technology that will mainly benefit the technology giants.

After posting a small decline in revenue for the first half, Unicom is less cheery about the rest of the year, predicting "increasing pressure" as it stops charging for domestic long-distance and roaming calls. This deal looks like a triumph of hope over experience.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Shuli Ren in Hong Kong at sren38@bloomberg.net
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net