[ET Net News Agency, 5 September 2018] A newswire reported that the Chinese government
is exploring the idea of a merger between China Telecom (00728) and China Unicom (00762).
BofA Merrill Lynch said, one year ago, the NDRC (National Development and Reform
Commission) approved mixed ownership reform plan for Unicom. With implementation of mixed
ownership reform, the research house believes the government would like to see Unicom
improving its operations (over the next 2-3 years) and competing more effectively than
before.
BofAML believes the outcome of Unicom's financial/operational performance (post
implementation of mixed ownership reform) may be a factor in the government's view on a
potential expansion of mixed ownership reform to other sectors (other SOEs as well).
However, if the merger is confirmed and the government were to initiate an industry
restructuring in which Telecom and Unicom merge together, the market could interpret it as
an as an indirect signal that mixed ownership reform did not work for Unicom as originally
planned.
Hence, BofAML is somewhat cautious about the likelihood of such a merger occurring in
the near term. In event of a merger, it believes China Mobile (00941) should benefit in
the near term as the two entities may incur a significant amount of time in resolving
human resources issues. (KL)