Investments Accounted for Using the Equity Method

12 Months Ended

Dec. 31, 2019

Investments Accounted for Using the Equity Method

21	INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

The amounts recognized in the consolidated balance sheets are as follows:


	As of December 31, 2019 Million		As of January 1, 2019 (As restated) (Note 3) Million		As of December 31, 2018 (As previously reported) Million
Associates		154,004		142,843		144,059
Joint ventures		1,224		1,266		1,266

		155,228		144,109		145,325

Details of principal associates, all of which are listed on exchanges, are as follows:


Name of associate	Place of incorporation/ establishment and operation		Proportion of ownership interest held by the Company or its subsidiary			Principal activity
SPD Bank		PRC		18	%	Provision of banking services
China Tower Corporation Limited (“China Tower”)		PRC		28	%	Construction, maintenance and operation of telecommunications towers
IFLYTEK Co., Ltd. (“IFLYTEK”)		PRC		13	%	Provision of intelligent voice and artificial intelligence products and services
True Corporation Public Company Limited (“True Corporation”)		Thailand		18	%	Provision of telecommunications services

(i)

Summary financial information on principal associates:


	SPD Bank
	As of December 31
	2019 Million		2018 Million
Total assets		7,005,929		6,289,606
Total liabilities		6,444,878		5,811,226
Total equity		561,051		478,380

Total equity attributable to ordinary equity shareholders		493,945		441,642
Percentage of ownership of the Group		18%		18%

Total equity attributable to the Group		89,774		80,291
The impact of fair value adjustments at the time of acquisition, goodwill and others		6,084		6,660

Interest in associates		95,858		86,951


	China Tower				IFLYTEK				True Corporation
	As of December 31				As of December 31				As of December 31
	2019 Million		2018 Million		2019 Million		2018 Million		2019 Million		2018 Million
Total current assets		40,995		31,799		11,430		7,762		31,298		26,309
Total non-current assets		297,072		283,565		8,671		7,540		90,680		78,251
Total current liabilities		128,364		114,759		6,866		5,813		35,186		43,097
Total non-current liabilities		27,142		20,103		1,500		1,278		57,457		33,215
Total equity		182,561		180,502		11,735		8,211		29,335		28,248

Total equity attributable to equity shareholders		182,559		180,502		11,418		7,971		29,184		28,123
Percentage of ownership of the Group		28%		28%		13%		13%		18%		18%

Total equity attributable to the Group		51,281		50,414		1,465		1,075		5,253		5,062
The impact of fair value adjustments at the time of acquisition, goodwill and others		—		—		810		812		1,834		2,851
Elimination of unrealized profits resulting from the transfer of Tower Assets and its realization		(2,543)		(3,115)		—		—		—		—

Interest in associates		48,738		47,299		2,275		1,887		7,087		7,913

Note:

The Group has recognized its share of SPD Bank’s and IFLYTEK’s comprehensive income for the year 2019 based on the financial information released and publicly disclosed by SPD Bank and IFLYTEK.

On August 8, 2018, China Tower successfully listed on the Main Board of The Stock Exchange of Hong Kong Limited and made an offering of 46,663,856,000 new ordinary shares (including both Hong Kong and International offerings with over-allotment option exercised) at a price of HK$1.26 per share. The Group’s shareholding in China Tower has been diluted from 38% to 28% and the gain as a result of equity interest dilution following the initial public offering of China Tower amounted to approximately RMB2,271 million was recorded in income from investments accounted for using the equity method.


	SPD Bank							China Tower
	2019 Million		2018 Million		2017 Million			2019 Million		2018 Million		2017 Million
Revenue		190,688		170,865		168,619			76,428		71,819		68,665
Profit before taxation		69,817		65,284		69,828			6,837		3,475		2,685
Profit attributable to ordinary equity shareholders		57,186		54,189		52,533			5,222		2,650		1,943
Other comprehensive income/(loss) attributable to ordinary equity shareholders		2,608		6,979		(5,568	)		—		—		—
Total comprehensive income attributable to ordinary equity shareholders		59,794		61,168		46,965			5,222		2,650		1,943
Dividends received from associates		1,867		533		821			111		—		—


	IFLYTEK						True Corporation
	2019 Million		2018 Million		2017 Million		2019 Million			2018 Million			2017 Million
Revenue		10,079		7,917		5,458		31,423			33,214			28,262
Profit before taxation		99 5		659		584		1,727			2,662			726
Profit attributable to ordinary equity shareholders		8 19		542		428		1,256			1,444			465
Other comprehensive income/(loss) attributable to ordinary equity shareholders		—		1		—		(186	)		(46	)		32
Total comprehensive income attributable to ordinary equity shareholders		8 19		543		428		1,070			1,398			497
Dividends received from associates		27		18		18		117			39			—

(ii)

The fair values of the interests in listed associates are based on quoted market prices (level 1: quoted price (unadjusted) in active markets) at the balance sheet date without any deduction for transaction costs and disclosed as follows:


	As of December 31, 2019				As of December 31, 2018
	Carrying amount		Fair value		Carrying amount		Fair value
	Million		Million		Million		Million
SPD Bank		95,858		65,993		86,951		52,282
China Tower		48,738		75,729		47,299		63,738
IFLYTEK		2,275		9,268		1,887		6,623
True Corporation		7,087		6,432		7,913		6,589

(iii)

The Group assesses at the end of each reporting period whether there is objective evidence that interest in associates are impaired.

As of December 31, 2019, the fair value of investment in SPD Bank was RMB65,993 million (2018: RMB52,282 million) based on its quoted market price, which was below its carrying amount by approximately 31.2% (2018: approximately 39.9%). Management of the Group performed an impairment test and determined the respective recoverable amount of the investment based on its VIU. The calculation has considered

pre-tax

cash flow projections of SPD Bank for the five years ending December 31, 2024 with an extrapolation made to perpetuity. The discount rate used to discount the cash flows to their respective net present values was based on cost of capital used to evaluate investments of similar nature in Mainland China. Management judgement is required in estimating the future cash flows of SPD Bank. The key assumptions are determined with reference to external sources of information. Based on the management’s assessment results and sensitivity analysis performed, there was no impairment of the investment as of December 31, 2019.

As of December 31, 2019, the fair value of investment in True Corporation was RMB6,432 million (2018: RMB6,589 million) based on its quoted market price, which was below its carrying amount by approximately 9.2% (2018: approximately 16.7%). Management of the Group performed an impairment test and determined its recoverable amount as the higher of its fair value less costs of disposal and VIU. Based on the management’s assessment results, there was no impairment of the investment as of December 31, 2019.

Other than above, the management has determined that there was no impairment indicator of the Group’s interests in other associates as of December 31, 2018 and 2019.

Details of a major joint venture are as follows:

In 2015, CMC, a wholly-owned subsidiary of the Company, together with State Development & Investment Corporation and China Mobile State Development & Investment Management Company Limited (45% of its registered capital is owned by CMCC), established China Mobile Innovative Business Fund (Shenzhen) Partnership (Limited Partnership) (the “Fund”). The Group recognized the investment as interest in a joint venture. CMC committed to invest RMB1,500 million, which represents 50% of the equity interest of the Fund. As of December 31, 2019, CMC had contributed RMB1,256 million (2018: RMB1,134 million) to the Fund with an outstanding commitment to further invest RMB244 million (2018: RMB366 million) to the Fund upon request to be lodged by the Fund. There were no contingent liabilities relating to the Group’s interest in this joint venture as of December 31, 2019.