Mainland telecommunication stocks plunged amid selling pressure yesterday as the planned industry reshuffle was unveiled.

China Unicom, China Netcom and China Telecom all fell more than 12 percent.

Selling its CDMA business to China Telecom at a good price, and with its merger with Netcom via a share swap, Unicom performed worst among the three companies yesterday, slumping 14.07 percent to close at HK$15.88.

Mainland commercial-property sectors are becoming more favored by investors compared with the more-expensive residential-property sectors. AFP

Netcom's shares dropped 12.75 percent to close at HK$23.60. Shares in China Telecom dropped 12.7 percent to close at HK$4.95.

Still, analysts are relatively optimistic about the reshuffle's impact on Unicom and Netcom.

Kelvin Ho, an analyst for Nomura, said in a research report that: "Unicom should benefit from the disposal of its non-critical mass CDMA operation and focus more on its GSM business".

And for Netcom, through the merger, Ho said, the company can secure a mobile business to defend fixed-line mobile substitution.

Goldman Sachs' research suggested that Unicom and Netcom will be the biggest potential beneficiaries of the revamp, as the merged entity has more mobile exposure than China Telecom and can enjoy inter-operator roaming as well as other synergy from the merger.

Analysts attributed the slump to long-term uncertainty over the restructuring, and said investors opted to cash out while they could.

Patrick Yiu, an associate director at CASH Asset Management, said the share prices rose too much on speculation before the detail was unveiled. He added: "Unicom cashed its asset, but without paying a special dividend has disappointed some of its investors".

Among the three companies, analysts seem most worried about the financial burden on China Telecom, as the listed company will spend 43.8 billion yuan acquiring the CDMA subs from Unicom.

China Telecom is expected to fund the deal with either debt or by issuing new shares.

Matthew Kwok, a research head at Tanrich Financial, said that China Telecom's capital expenditure will be increased substantially.

Deutsche Bank Research Analyst William Bratton said in a research report that the CDMA network may not be a particularly high-quality asset. "The CDMA contribution to China Telecom's financial performance over next two years will be limited," he said.

Rising competition after the industry revamp also sent China Mobile lower yesterday.

It lost 2.21 percent to HK$115, but Yiu expects that the leader status of China Mobile will not be challenged in the short term.

"Investors seem to be too sensitive," Yiu noted, adding that share prices in those companies should stabilize shortly.

(HK Edition 06/04/2008 page2)