Runcom Technologies Ltd. is reportedly investing $100 million in a Chinese company. In return Runcom will receive sole rights to supply equipment for the setting up of a wireless communications network by ChinaTel in China. The significance of the deal will be that Runcom will enjoy an income of up to $100 million, and an equity stake in ChinaTel. According to the report, the exact conditions of the investment are still being negotiated, but $50 million will be provided by November 25. Despite publication of the report, Runcom CEO Dr. Zion Hadad today refused to comment on the matter.
Runcom, which was founded by Dr. Hadad in 1997, develops chips for wireless digital communications. The OFDMA standard in which Runcom specializes is the considered the basic technology for WiMAX and the competing LTE technology, and is expected to become the fourth cellular technology generation.
Runcom sells chips to computer and mobile phone integrators (such as telephones, modems and home communication boxes) and cards for communications operators' base stations, and in addition, provides consultancy to clients. Since the beginning of the decade the company has been working on projects mainly in the Far East and Samsung was one of its first customers.
Telecommunications service provider ChinaTel began operating several months ago, after acquiring US company Trussnet.
Runcom's operations in the Chinese market are not new, but the current agreement with ChinaTel should greatly accelerate its activities there. But the latest agreement also raises questions.
An example is the financial end of the deal. In a conversation with "Globes" six weeks ago Dr. Hadad said that the company had $20 million in the till after raising $10 million from the UK's TLcom Fund in August. Taking into account the state of the markets in general, and Runcom's history in particular, it is reasonable to assume that not much has changed since then and the company does not have an amount even approaching $100 million. However, Runcom is entering into the agreement with ChinaTel through a third party that is expected to be a financial investor or major strategic partner that has the ability to invest that amount of capital. In return the investor will receive about 28% of the shares of the service provider operating throughout China.
Despite the agreement with the service provider, it is possible that in the end the accompanying financing deal will not succeed, and in that instance, ChinaTel says in its report, Runcom will not receive sole rights to supply the equipment, but will remain a "preferred supplier to ChinaTel."
Published by Globes [online], Israel business news - www.globes-online.com - on November 9, 2008
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