State-Owned China Mobile Acquires 10% of DahuaBy Charles Rollet, Published Mar 29, 2021, 08:13am EDT
China's state-owned and largest telecommunications provider China Mobile has acquired 10.42% of Dahua (for nearly $1 billion USD), becoming Dahua's second-largest shareholder after Dahua founder Fu Liquan and his wife.
This gives previously privately-owned Dahua substantial China government backing since China Mobile is a state-owned firm that shares the same ultimate parent as Hikvision.
In this post, IPVM examines this news and what it means for Dahua.
China Mobile Purchase Explained
In a March 26 announcement, Dahua disclosed that China Mobile is buying $853 million of Dahua stock giving it ownership of 10.42% of the company:
Dahua issued new shares for this, diluting existing shareholders and receiving the investment directly.
Before the China Mobile investment, Fu Liquan and his wife Chen Ailing owned 36.56% of Dahua, and after the transaction, the pair now own 33.11% of Dahua, the disclosure stated, adding that there has been no change in controlling shareholder (Fu).
Discount For China Mobile
China Mobile received a significant discount, paying just 80% of the average price for Dahua stock from the last 20 days, at 17.94 yuan per share while Dahua's stock today trades at 24 yuan per share.
Often, investors pay premiums for acquiring such a significant share of companies (e.g., ADT/Google in 2020). However, China Mobile's power provides Dahua significant advantages within China.
Purpose Of Investment
Dahua said the ~$850 million of cash from this "strategic investment" has three main purposes.
- Achieving "win-win" cooperation with China Mobile. This section is vague, e.g. Dahua states it will "achieve technological upgrading of products through technical cooperation" with China Mobile.
- Providing working capital for various Dahua projects, including a new "Intelligent Manufacturing Base" in Hangzhou, a new R&D center in Southern China, and a Smart IoT Solution center.
- "Optimizing Dahua's capital structure" and reducing its asset-liability ratio, "thereby ensuring good profitability and operational stability".
China Mobile Background
China Mobile is China's largest telecom provider, with ~1 billion subscribers and about $117 billion in sales last year. Its dominance stems from the fact that it is state-owned, listed on the official directory of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC):
SASAC is also the controlling shareholder of Hikvision, with SASAC entities controlling about 41% of the company, per its latest disclosure.
Analysis: Good For Dahua, Potential Hikvision Risk
In the shorter term, this cash infusion will certainly help Dahua improve its manufacturing and R&D capabilities, while technical cooperation with China Mobile could help Dahua improve its position in the 'Smart IoT' field.
Longer-term, the fact that the PRC government is now Dahua's second-largest shareholder means Dahua now has direct state backing, the one factor it lacked in its competition with Hikvision. This will help Dahua compete further with Hikvision, particularly in China's vast market for government security projects.
Confirms Earlier Reuters Reporting
Last September, Reuters reported that Alibaba and China Mobile were eyeing a $443 million investment into Dahua, claims that Dahua strongly disputed, even claiming it would "sue whoever reported this" (which it did not do). Reuters's reporting on China Mobile has been proven correct by this announcement. It is unclear whether Alibaba never considered investing in Dahua or subsequently decided not to do so.
Dahua Now Partially State Owned
One of Dahua's main counterarguments to overseas criticism is that unlike Hikvision it was not state-owned. Now, it partially is.
2 reports cite this report:
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