Trujillo's parting gift for Telstra: China

The telco's former chief executive may have attracted plenty of criticism but his foresight on investing in China shouldn't be overlooked.

The controversial former chief executive of Telstra Sol Trujillo is not much loved in Australia. But he has bequeathed one great legacy for the telco giant – investment in Chinese digital assets.

When our American amigo left the country in 2009, there were few tears shed. He left behind a country that bitter about his comments labelling Australia “racist” and “backward”.

More importantly, his relationship with customers, regulators and Canberra was in tatters. Telstra shares, a staple diet for Australia’s mum and dad investors had tanked.  Roughly $25 billion was wiped from Telstra’s market value.

However, Trujillo’s investment in Chinese digital assets has netted billions for Telstra’s 1.4 million shareholders.  

When the telco giant floated its majority-controlled Autohome – a leading Chinese online car sales site – on the New York Stock Exchange, its shares surged as much as 77 per cent, valuing the company at $3.3 billion.

Telstra bought into online assets back in 2008 under Trujillo’s watch, when the company paid $76 million for a 55 per cent stake in Sequel Media, which owned Autohome and other assets.  The telco also recently lifted its shareholding from 66 per cent to 71.5 per cent, paying $137 million to its shareholder West Crest.

Its initial and subsequent outlays of more than $200 million have mushroomed into more than $2.2 billion or profits. This is roughly a 1000 per cent return on investment in less than five years.

Autohome is not the only success story for Telstra in China. In 2006, Trujillo also saw the company buy into SouFun – China’s second most popular property website. Telstra paid $254 million for a 50.5 per cent shareholding in the site.

When David Thodey, the ‘steady as she goes’ chief executive took over from the much hated Trujillo, he decided to offload the company’s stake in Soufun. The company’s board was uncomfortable with Trujillo’s aggressive strategy in China and wanted out.

Telstra made US$190 million on the sale in 2010, a tidy profit of 70 per cent on its initial investment. 

However, had Telstra not lost its nerve back then, its investment could have been much more juicy. When Soufun was debuted on the New York Stock Exchange on September 16, 2010, it was worth about $10.6 per share and when it closed on December 12, it was worth about $71.8 per share.

What a terrible loss for Telstra shareholders!

When Trujillo invested in internet start-ups in China back in 2006, the country’s venture capital market was under-developed and Chinese entrepreneurs were desperate for foreign capital. As a result, foreign investors have been behind some of the biggest internet success stories in China.

Yahoo, an early strategic investor in Alibaba – an e-commerce giant which is tipped to list soon – is expected to reap as much as $US36 billion from its investment, according to RBC Capital.  It means that Yahoo’s 24 per cent stake in Alibaba is actually larger than the market capitalisation of the company itself!

South African investor Jacobus Bekker also made billions from his investment in Chinese internet giant Tencent. He bought half of the Shenzhen-based company in 2001 for $32 million. The company’s market value surpassed $100 billion within a decade after floating in Hong Kong, making it one of the largest internet companies in the world.

Despite China’s tough foreign ownership laws, foreign investors like Telstra have used clever legal mechanisms to invest in one of the biggest internet booms outside of the United States and reaped handsome profits.

Seek chief executive Andrew Bassat and his brother Paul Bassat are also set to profit handsomely from the proposed float of Zhaopin, one of the largest job sites in China, which they have an 80 per cent shareholding in.

When the corporate history of Telstra is written, Trujillo should be given credit for his foresight in investing early into the now booming Chinese market.

Follow Peter Cai on Twitter: @peteryuancai

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