TCL Communication Technology Holdings Ltd, a mobile phone maker listed in Hong Kong, announced yesterday that it is to purchase Alcatel's share in their joint venture to enhance the integration of its businesses.

The pair established a joint venture - TCL & Alcatel Mobile Phones Ltd - in September last year in Hong Kong, with TCL holding a 55 per cent share.

According to the company's statement, TCL Communication will issue HK$63.3 million (US$8.12 million) in new shares to cover the purchase.

TCL Communication, a unit of domestic-listed TCL Corp, said the purchase would enlarge its current share base by 5 per cent, with new shares used to pay for Alcatel's 45 per cent stake in the joint venture.

But the issue of new shares is yet to be approved.

TCL Communications shares dropped by 7.77 percent to end at HK$0.415 (5.3 US cents) yesterday.

"The purchase, in the short term, means a larger risk for TCL Communication as it will become the owner of the joint venture," China Securities analyst Dai Chunrong told China Daily.

Company figures show that in the first quarter of the year the joint venture made a net loss of HK$357 million yuan (US$45.7 million), while TCL Communication, China's second-largest handset maker, posted a net loss of HK$386 million (US$49.4 million).

Dai believes the departure of Alcatel shows the partnership is not working well.

"Nevertheless, it has always been tough for a merger between domestic and foreign companies in such a short time," she said.

"The purchase is a critical step forward and will help lay foundations for TCL Communication to prosper and grow in the future," said TCL Communication Chairman Li Dongsheng in a statement.

It also said Alcatel would pay TCL Communication 20 million euros (US$26 million).

Separately, TCL Communication said it would issue 20 million euros (US$26 million) worth of convertible notes to its parent to fuel the development of the joint venture.

(China Daily May 18, 2005)