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Stake sale to power local 3G standard

By Mao Lijun (China Daily)
Updated: 2007-07-04 08:37

Shanghai-listed Yangtze Power Co has signed a contract with Datang Mobile to pay 1.3 billion yuan for a 12 percent stake in Datang, a key developer of Chinese home-grown standard for third-generation (3G) mobile phone services, TD-SCDMA, a source said.

The country's two largest insurers, China Life Insurance Co and Ping An Insurance Co will also buy stakes from Datang but are still negotiating on the amount of stake and price. Each of the two insurers is expected to invest at least 1 billion yuan into Datang, the source said.

The cash injection is expected to boost cash-strapped Datang, which has been developing TD-SCDMA to catch up with rival foreign standards WCDMA and CDMA2000.

This comes hard on the heels of an interest-free loan China Development Bank awarded to Datang for TD-SCDMA development in April. The 15-year loan was reportedly worth 4.6 billion yuan.

The backing from China Life, Ping An Insurance and Yangtze Power underlines the increasing momentum TD-SCDMA is gaining, which could benefit Datang.

Datang says it owns the majority of core intellectual property rights (IPRs) of TD-SCDMA.

The government has yet to license the 3G telephony in the country but many observers now expect TD-SCDMA to grab a third of the market in the future because of the strong backing from the government.

This is luring some companies to invest in companies like Datang in anticipation of high returns after the government gives its nod to operators to build 3G networks based on TD-SCDMA.

Chen Yicong, an electric power and equipment industry analyst with Southwest Securities, said: "As the operator of Three Gorges Dam, the world's largest hydropower project, Yangtze Power is a good company with relatively low ratio of debts to assets and has made successful investments in electric corporations in Shanghai, Hubei and Guangdong.

"The expected purchase of stakes in Datang is because of Yangtze Power's anticipation of high returns. The deal is like the one in which Yangtze Power acquired stakes in China Construction Bank and profited from the bank's rising share prices."

Shares of Yangtze Power has risen 12.32 percent in the past six trading days even as the Shanghai Composite Index slid from 3,973 to 3,899.

Chinese operators have been building TD-SCDMA trial networks in several cities. Earlier this year, China Mobile Communications Corp expanded its own trial 3G networks from Xiamen to eight cities with an investment estimated at nearly 30 billion yuan.