Beijing towers over China’s next $9B IPO

beijing — China Tower Corp’s Hong Kong IPO looks like a pretty straightforward affair. The business is about as vanilla as it gets: The company builds and runs towers on which telecom operators hang their transmission equipment. It collects rent in return. No need to wrestle with GMV, MAU or ARPU.

There’s a reason why fund managers and index compilers treat global peers like American Tower and Crown Castle International as real estate investment trusts.

In China, things are rarely so simple, however. Not only is China Tower a “manufactured” company (the result of three telcos spinning off their tower businesses), rather than an “organic” one (set up to serve telecom clients), it’s got Beijing’s fingerprints all over it.

With a 5G rollout coming and the nation determined to be a global leader in this field, China Tower will need buckets of cash to expand.

Hence its plan to raise up to $8.7 billion in a Hong Kong listing (for a valuation as high as $35 billion), a figure that exceeds the $5.4 billion Xiaomi picked up in its debut this month. In fact, that will be the largest global IPO since Alibaba Group Holding garnered $25 billion four years ago.

You might switch the company’s apt but unimaginative name to National Service Corp, because that will be its primary function. This role is even spelled out in the prospectus.

We are an indispensable driving force in the implementation of China’s strategy of building strength in cyberspace.

China Tower was born out of national service and is raising almost $9 billion for national service, so investors can be sure that when strategic decisions are needed, they’ll be made in the interests of the nation.

There are a few ways this could play out, and one stark example is provided by the technology itself.

Because of its specifications, 5G requires denser transmitter networks, which means more towers per square kilometer and the implementation of smaller cells covering less territory.

In theory that’s good for China Tower, since it would mean more sites on which to charge rent. However, as Sanford C. Bernstein analysts Chris Lane and Samuel Chen wrote recently, the return on investment for small cells could be far worse than for macrocells covering larger areas. —