China Unicom, China's second biggest telecommunications company, may sell a stake in itself to a strategic investor, according to Telecom Financing Week, an industry newsletter. This follows the lead of rival China Mobile, which earlier this month sold a 2% stake to UK-based Vodafone.

Unicom, which has a market capitalization of $25 billion, raised $4.9 billion in an initial sale of its shares in New York and Hong Kong in June. It plans to spend $4.8 billion this year to build out its network and a total of $12 billion by 2002.

Ever since Hutchison Whampoa, the conglomerate run by local tycoon Li Ka-shing took a 1.6% stake in Unicom at the time of the IPO, numerous investors have come forward seeking to take a strategic stake in the company, says Tan Xing Hui, a China Unicom director in Hong Kong. At this stage the company is talking to several potential partners but has not yet reached a decision on which it will choose, Tan says.

"A lot of global investors have expressed interest in investing in us and we are continuing discussions with all of them," he says.

Tan claimed the article in Telecom Financing Week, which said Unicom was seeking to sell as much as 10% stake in itself to raise about $2.5 billion, was not accurate. He also denied that the company planned to raise up to $4 billion in debt over the next six to eight months.

Analysts say potential investors in Unicom could include: Hong Kong-based Hutchison Whampoa; NTT DoCoMo of Japan, which is looking to export its successful i-mode mobile phone service abroad; cash-rich Singapore Telecommunications, which is trying to make a name for itself as the region's dominant wireless phone company; and even some European companies who, despite heavy debt burdens brought on by high bidding for third-generation (3G) mobile phone businesses, are down but by no means out.

"There would be a lot of interested parties," says Ni Quiaque Lai, director of Asian Equities Research at Credit Suisse First Boston in Hong Kong. "Unicom tends to have a good relationship with Hutchison, whose friends include DoCoMo and Asia Global Crossing, but a stake of up to 10% stake would be relatively digestible and wouldn't make or break any of the European carriers."

Under Chinese law, foreign investors are not allowed to hold more than 25% of China Unicom or China Mobile. Once the country enters the world trade organization (WTO) foreign investors will be able to own 25% of any Chinese telecom. That figure rises to 35% after five years and 49% after six years.

That means that Unicom's parent company, China United Telecommunications, would need to buy three out of every four new shares Unicom might issue to maintain its 75% stake. That would likely take the form of an asset injection (the company owns telephone networks in 19 Chinese provinces) or a convertible bond, which can be converted once regulations change, analysts say.