China Mobile Ltd (Hong Kong, China), the world's largest mobile operator, said on Friday it will use $780 million to set up a finance unit in a move that could disappoint shareholders hoping for a dividend hike.
The new unit would be called China Mobile Finance and would engage in financial services such as insurance agency business and inter-bank lending, China Mobile said in a statement posted on the Hong Kong stock exchange.
"It has become increasingly important to find a solution to further strengthen the internal funds management and better control liquidity risks," China Mobile Chairman Wang Jianzhou said in the statement.
China Mobile's wholly owned subsidiary Beijing Mobile will contribute $720 million to the new company, with China Mobile's parent company CMCC giving the remaining $62.6 million, the company said.
This is the second time China Mobile is associating with the financial services sector, having spent about $6 billion in March last year to buy a 20% stake in the mid-sized Pudong Development Bank.
Then, China Mobile had said the purchase was necessary to help it develop its electronic mobile payment system by making it easier to process the money it receives.
China Mobile is one of the world's most cash-rich companies with over $45 billion in cash sitting in its bank accounts at the end of 2010, prompting calls from some shareholders for it to raise its dividend payout ratio.
The company has so far refused to do so, saying it operates in a fast-growing market and needs the money to fund its future growth strategies. China is the world's biggest mobile phone market with over 900 million users at the end of June.
"The cash China Mobile has is probably enough to buy up some companies," said Bertram Lai, an analyst at CIMB Securities.
"There were calls for the company to raise its dividend payout, but that's cooled off as investors get used to the reality that China Mobile probably won't."
(Reporting by Kelvin Soh; Editing by Chris Lewis and Muralikumar Anantharaman)