CITIC and CE-SCM to acquire China Enterprise Communications

HK$258.4mln acquisition prompts CITIC to propose change in CEC’s company name to CITIC Telecom.

The telecoms services provider CITIC 1616 Holdings Limited (“CITIC 1616” or “the Group”) announced on Thursday that CITIC Group, its ultimate shareholder, and CE-SCM Network Technology Co., Ltd. (“CE-SCM”) have entered into an agreement for CITIC 1616 to acquire China Enterprise Communications Ltd. (“CEC”). The Group has also proposed to change the Company name to “CITIC Telecom International Holdings Limited” to better reflect the nature of the Group’s business, according to a CITIC report.

CITIC Group, CE-SCM and the Information Centre of State-owned Assets Supervision & Administration Commission of the State Council (“SASAC”) currently hold 53.32%, 40.77% and 5.91% equity interest in CEC respectively. Pursuant to the acquisition agreement, CITIC 1616, through CPCNet Hong Kong Limited (“CPCNet”), its wholly owned subsidiary, is to acquire 49% equity interest in CEC from CITIC Group and CE-SCM. Upon the completion of the transaction, CITIC Group is to grant a call option to CPCNet to acquire the remaining 45.09% equity interest in CEC. The equity interest of SASAC will remain unchanged.

The total consideration of the CEC acquisition was approximately HK$258.4 million. The Group is to pay HK$187.6 million in cash and assume the debts of US$9.1 million owed by a subsidiary of CEC to a subsidiary of CITIC Group. CITIC Group disposed CEC to CITIC 1616 at the original acquisition cost of approximately RMB80.8 million. The consideration is equivalent to a multiple of 1.55 times the sales of CEC in 2009. CEC just turned profitable in 2009. In view of the successful turnaround and fast growing story of CPCNet upon it was acquired by CITIC 1616 in 2007, the Group is confident on CEC’s future performance.

Founded in 2000 and headquartered in Beijing, CEC is a leading IP-VPN (internet protocol-virtual private network) services provider in China and the first independent IP-VPN service provider, apart from Chinese telecom operators, to be granted a nationwide IP-VPN licence from the Ministry of Industry and Information Technology of the PRC. CEC is thus allowed to provide domestic IP-VPN services throughout China. After the acquisition of CEC, the Group intends to continue to enhance its cooperation with all operators to boost its long-term development.

Mr. Chang Zhenming, Vice Chairman and General Manager of CITIC Group, said, “CITIC Group has a wide business scope in overseas and each of its business segments has excellent competitive advantage. As the flagship division of CITIC Group in the overseas telecom industry, CITIC 1616 strives to enhance its brand awareness in the Hong Kong and international telecom market.”

Mr. Luo Ning, Director of CITIC Group and Chairman of CITIC Networks, said, “The acquisition of 49% equity interest in the nationwide IP-VPN licence through the transaction will allow CITIC 1616 to boost its advantage for long term development, enabling it to extend its scope of business to the vast China market and to expand its business scale immediately.

Moreover, serving as the international platform of CITIC Group in the telecommunications industry, CITIC 1616 will strengthen the collaboration with other telecommunications business of the Group and increase its economies of scale.”

Mr. Xin Yue Jiang, Chairman of CITIC 1616, said, “We are pleased to have the full support of our ultimate shareholder, CITIC Group, which will directly inject assets into CITIC 1616 for the first time to facilitate our strategic development. We believe that the provision of value-added IP-VPN services will become one of the key growth drivers in telecommunications throughout China. After CEC merges with CITIC 1616, the consolidated operations should create wider synergies, complementing our partnership with CITIC Group and SASAC, and maximising our advantageous position.”

“Also, the Group plans to change its name into ‘CITIC Telecom International Holdings Limited’ to more accurately reflect our business and our determination to develop a diversified telecommunication business, as well as our role as the key telecommunications business investment platform overseas for our ultimate shareholder, CITIC Group.”
The acquisition will generate positive impact to CITIC 1616 in the following aspects:

1. Use CEC’s domestic network to provide seamless IP-VPN services directly to enterprises;
2. Create significant synergies via sharing of networking technologies and resources and human resources as well as both companies’ sales channels to strengthen the overall economies of scale;
3. Increase scale of operation after the merger can enhance the Group’s bargaining power over suppliers and customers.

Mr. Xin concluded, “Our business has been expanding quickly after our public listing, bolstering the strengths of all business segments. Our products and services are also well respected among domestic and international customers, reinforcing our determination to become a leading telecom value-added supplier in the Greater China Region. Towards this end, we intend to optimise and expand both our scope of business and market coverage, and leverage the emerging investment opportunities to generate sustainable good returns for our shareholders.”