The Lis have it
int.quamnet.com
Market 2000-03-01
The Lis have it. Pacific Century CyberWorks, 1186, 's offering of 1.1 shares for each CWHKT, 8, or the part cash alternative, $7.23 in cash and 0.7116 PCCW shares, has been accepted by Cable and Wireless for its 54% stake. They have accepted the part cash deal and have agreed to sell the PCCW shares in three stages, should they want to do so, firstly they can sell 4% immediately and the balance at two stages half after 6 months and half after a year. The $7.23 would value PCCW shares at $20.50, as this would be the payment for the extra 3.884 shares, and the balance of the Cable and Wireless holding will remain a weight over PCCW's share price until it has been exhausted. But this deal certainly puts real value into PCCW's share price, although whether that is necessarily permanent is a moot point, especially as this enlarges the capital base of PCCW and, for the time being at least, it will dilute PCCW's optimum hope value. At the same time it ensures the inclusion of PCCW as a constituent member of the HSI, in effect replacing CWHKT, and therefore this will become a must buy for those who are trying to emulate the performance of the index, as is the Tracker Fund, 2800, and probably it will also replace CWHKT on such other indices as that of Morgan Stanley, which is often copied by US investment houses. So in the first instance PCCW's share is likely to soar, as it must now become an essential ingredient to many, or most portfolios, and it will also in market capitalisation exceed that of Hutchison Whampoa, 13, at $470 billion, as well as that it will dwarf his fatherÝs company, Cheung Kong, 1, now valued at $240 billion, K S Li had taken the last 30 years to be where he now is in financial terms. Whilst his son has outdone him overnight. PCCW will become the third biggest component to HSI after China Telecoms, 941, and HSBC, 5, and at the rate things are going even HSBC would not be invulnerable to the swoop of this new comer. But if PCCW's share price will rise in this anticipation it will also push CWHKT's price to former heights. Cable and Wireless has accepted the cash component offer, so if PCCW were to get back to around $28 this would put a price of about $27.20 on CWHKT. With the relisting of PCCW and CWHKT today, as well as the initial dealings in Tom.com the Hong Kong stock market is in for one of its biggest and best days. Yesterday the HSI had already started to move up, although when the story became confirmed throughout the day prices were not that much affected. In fact after the spread of over 1,000 points on Monday yesterday's spread was less than 300 points, or 1.5%, ranging between 17,021 to 17,290. At the close the index had gained 185 points to close at 17,169, but turnover had fallen to only $13 billion, about the lowest level of the month. Advances were triumphant again at 526 issues rising against only 159 issues contracting. But Hong Kong China shares reversed their climactic moves on Monday, with the red-chips gaining 5%, up 60 points to 1,327 and even the H shares awoke from their slumber to rise by 6 points to 335. In Shanghai the A shares were higher by 10 to 1,825, its highest point during February, but Shenzhen A shares fell slightly, by 1 point to 565. Turnover in these two mainland markets rose to RMB55.5 billion. The bank results, HSBC, 5, and Hang Seng Bank, 11, did not impact immediately on the share prices. HSBC managed to rise 25 cents to $89.25 but Hang Seng Bank fell 75 cents to $70.25, and there was not much volume, as even HSBC could only muster $628 billion after its announcement. HSBC's new and potential profits yield will certainly stabilise the share price, and after finding a level, it should be able to forge a gradual climb thereafter. We will certainly not be surprised, and we expect it to happen, that HSBC will reach $120 during this year. Hang Seng Bank will depend quite largely on its higher dividend yield, as its growth prospects, while still extent, will not be as great as some other stocks in the near future. Last year's dividend, but without the special dividend declared when HSBC was contemplating paying for its purchase of Republic New York Corporation, was $4.10, and this could quite reasonably be raised to $4.50 per share during 2000, and even at $90, and at worst at $82, it would have a real dividend yield of 5%, which on precedent for this company is most unusual. Legend, 992, took advantage of its high price in order to issue shares as a placement. By issuing 85 million shares at $33.75 it will raise about $1.6 billion, and this is to be invested in various net-related ventures, as yet unspecified. The price of Legend had risen by $3.50 to $36. The use of the higher share price to increase net shareholder asset value had been a main element of the red-chip boom in 1997, when asset values had been dragged up by their bootstraps in this way. This of course would also apply to the unbelievable expansion of Pacific Century CyberWorks, where instead of cash they have acquired a company with much greater basic net assets than their own NAV. Other internet, or technical, venture capital funds, like Golden Power, 603, home for Hikari Tsushim, rose $3.45 to $14.50. Acme Landis, 616, now the stable for Timeless, Cheung Wah Holdings, 648, the nest for Softbank, up $3.05 to $12, all rose, in anticipation that the dust will come from the new Tom.com, 8001, as will also fall the glory of PCCW's conquest of Rupert Murdoch's assisted SingTel bid. Yet at the other end of the line we saw new lows for both Hong Kong and Shanghai Hotels, 45, down a whopping 52.5 cents to $3.425, and Hang Lung Dev, 10, down by 35 cents to $6.05. HS Hotels is now capitalised at under $4 billion, and that with net assets which were shown on the last accounts at over $10 billion, and that was after two years of aggressive property provisions. Should this tempt Michael Kadoorie into privatising this company, as he already treats it as if it were a private fiefdom, whether it prompts him to make a few strategic sales of US property ventures, even doing a Dickson Poon by combining the two, then this would add value to shareholders, or of those who can buy at this price. Hang Lung is now given a market valuation of $8 billion whereas its asset valuation, after similar aggressive provisions, was reduced to just over $20 billion. These two companies do not have any debt, so there is no fear for their safely even should there be another financial squeeze. (end) |
