Telefonica, China Unicom to swap $1 billion of stock

Telefonica SA, Europe’s second-biggest phone company, said it will pay $1 billion to boost its stake in China Unicom (Hong Kong) Ltd, and raise its investment in the world’s biggest communications market.

Telefonica will increase its holding in Unicom, China’s second-biggest wireless carrier, to 8.06 per cent from 5.38 per cent at present, the two companies said in a joint statement today. Telefonica also agreed to sell an equal value of shares to Unicom, which may gain a stake of as much as 0.892 per cent in the Spanish company, according to the statement.

The Madrid-based carrier will strengthen its position as Unicom’s biggest overseas investor as the Chinese company starts commercial operations of third-generation networks this month.

Unicom last month reached an accord with Apple Inc to sell the iPhone handset, helping its plan to market the high-speed services to the country’s more than 700 million wireless users.

Unicom will issue 693.9 million new shares to Telefonica at HK$11.17 each, compared with the stock’s closing price in Hong Kong of HK$10.74 on September 4. The Chinese company will buy 40.7 million Telefonica shares at ¤17.24 apiece, according to the statement.

Telefonica initially invested in China Netcom Group Corp in 2005.

The Chinese fixed-line carrier was acquired by Unicom last year in a share-only deal as part of a government-led reorganisation of the domestic phone industry.

The Spanish carrier’s stake in Unicom following the latest increase will be more than double the 3.79 per cent that is held by South Korea’s SK Telecom Co, according to the Chinese company’s website.

Under today’s accord, Telefonica and Unicom also agreed to co-operate on the purchasing of handsets and phone equipment, roaming, and the provision of network services, the statement said.

Unicom, based in Beijing, added 680,000 mobile-phone subscribers in July for a total of 141.1 million at the end of the month. That is less than a third of China Mobile Ltd’s total of 497.7 million.

China had 702.7 million mobile-phone subscribers at the end of July, according to government data. That is more than the combined populations of the US and the Eurozone.

Unicom will begin commercial operations of its 3G services at the end of this month, it said on August 28. The company said that day it will start selling Apple’s iPhone in the fourth-quarter.

Julio Linares, Telefonica’s chief operating officer, said September 1 the company planned to gradually boost its stake in Unicom to 10 per cent. He didn’t give a time frame. Telefonica is Europe’s second-largest phone company.

Telefonica shares have gained 9.7 per cent this year, valuing the company at ¤81.8 billion ($117 billion). Unicom has climbed 15 per cent, valuing the company at HK$255.3 billion ($32.9 billion).