By staff reporter Ming Shuliang

China Telecom Corp., the largest fixed-line telecom operator in the country, said July 21 it plans to issue up to 50 billion yuan worth of bonds “for the purpose of supplementing the general working capital of the company." The proposed bonds will have a maturity date extending up to 10 years, and while “supplementing the general working capital” might be the stated objective, some see a more specific motives in the new initiative.

“The bond issuance can be seen as capital preparations for China Telecom's purchase of code division multiple access (CDMA) assets," said a source close to the company.

China's telecom industry underwent a bout of restructuring in June that winnowed a field of six major companies down to three. Under the new plan, China Telecom Group and its subsidy China Telecom Co. Ltd. (HKSE: 00728) will pay a total of 110 billion yuan to China Unicom to take over their CDMA network. The deal is expected to go through by the end of the year.

With an eye on building capital for its future wireless venture, China Telecom has reduced investment in its fixed-line business over the last two years. The company's 2007 annual report showed that they already had amassed about 20 billion yuan to this end. 

However, analysts say the cost of improving and expanding the CDMA network will be huge. According to Chen Yunhong, analyst at Guojin Securities, China Telecom will invest 17 billion yuan in CDMA in 2008, and by 2010 their wireless expenditures will total 105 billion yuan.

A CDMA equipment maker told Caijing that China Telecom Group has opened a bid for 4 to 5 million CDMA handsets, which will cost about 500 million yuan. Suppliers are to submit their offers within the week and the purchase will be completed by the end of the month.

Meanwhile, China Telecom also needs to keep some capital reserved for future development of 3G technology, which should be hitting the mainland in the near future. China's telecom regulator has confirmed that 3G licenses will be issued after the telecom restructuring is complete.

But China Telecom might look toward other sources to fund its 3G drive. A senior manager from the company told Caijing that "this round of financing is mainly for the purpose of CDMA purchase and development. The development of 3G business will need future financing."

In its July 21 statement, China Telecom said that an extraordinary general meeting will be held on September 5 to seek shareholders' approval for the issuance of up to 80 billion yuan worth of debentures, including the 50 billion yuan in bonds.