China Telecom Corp Ltd, the nation's biggest fixed-line firm, is considering buying up new provincial phone networks from its parent company, according to sources close to the company.

The subsidiary has started talks with its parent company about the purchasing plan, but no details are available at the moment, said the source.

The company is also in contact with several investment banks - including Morgan Stanley, China International Capital Corporation and UBS Investment Bank - about raising finances for future purchases.

But the source pointed out that the discussions remain at a very early stage, with "neither the price nor the financing of any purchase having been agreed." Options up for discussion in the talks include the sale of China Telecom shares held by the State-owned parent company and the issuing of new debt, according to the source.

It is reported China Telecom plans to issue new shares to raise US$3 billion to purchase phone networks from its parent venture.

These purchases are likely to include the fixed-line network business and the parent firm's data and Internet businesses.

"We have been committed to putting more of the parent firm's assets into our listed arm since we launched our IPO two years ago," said an anonymous official at the general office of the board of China Telecommunications Corporation, parent of China Telecom Ltd.

But he remained tightlipped about a new round of purchase talks from its listing arms.

China Telecom shares rallied strongly last year after a slow start following the company's initial public offering in late 2002.

The new share offer will also help increase the ratio of China Telecom's public shares.

But some analysts predicted that the purchase plan is not likely to be agreed in the near future.

China Telecom Ltd acquired six provincial networks from its parent company for 46 billion yuan (US$5.56 billion) in October 2003, bringing its number of city and provincial networks to 10. The company eventually plans to buy another 11 networks still owned by its parent.

"It is quite a normal step for a listed company to gradually purchase assets from its parent firm," said Dai Chunrong, an analysts from China Securities.

(China Daily February 20, 2004)