Doubts linger as CyberWorks fights back
ARUN SUDHAMAN
South China Morning Post, 01/21/2001, 972 words.
For Pacific Century CyberWorks, last week was the most harrowing in a share-price slide that has given a new definition to the word "turnaround".
From the dizzying heights of HK$28.50 per share in February last year, the counter hit HK$3.77 on Wednesday, its lowest price since it bought Cable & Wireless HKT last year.
Richard Li Tzar-kai is estimated to have lost a whopping HK$8 billion on paper this year, thanks to the 75 per cent drop in CyberWorks' share price.
And the bad news does not stop there. Analysts have attributed the latest price tremors to concerns that Britain's Cable & Wireless (C&W) will sell part of its stake. The worry is that the telecommunications giant will dump half of its 14.9 per cent stake in the company when the lock-out expires next month.
The last time C&W released part of its holding, in September, CyberWorks' stock price slumped 15.81 per cent in one day. Investors are nervous the same will happen this time, particularly with market speculation that the stake will be unloaded for as little as HK$3 per share.
C&W, for its part, has refused to comment on the rumours and has failed to state if it will retain its share. It is the latest in a list of troubles to have blighted CyberWorks' attempts to establish itself as a leading new economy company in Hong Kong.
The recent interest rate cut by the US Federal Reserve may have increased sentiment in favour of the heavily indebted CyberWorks, but the effect was short-lived. Bankers were soon raising the interest rates on CyberWorks' loans, amid general concerns over the borrowing prospects of telecoms companies.
After basking in the glow of the high-technology stock bubble last year, CyberWorks' expectations appear to have fallen back to Earth. Investors have fled the stock in droves, worried over the ability of the company to generate long-term revenue.
Howard Gorges of South China Brokerage believes CyberWorks is a victim of its own success.
"It's a very hard stock to judge because it's affected by sentiment to a great degree," he said.
This is partly due to the exploits of CyberWorks' PR machine last year, when every new deal was greeted with fanfare, pushing the stock price up to hugely inflated levels.
David Webb, editor of Webb-Site.com, estimated the company's share price to be HK$6 as early as last March, to the derision of analysts expecting CyberWorks to maintain its double-digit levels.
"If those valuations say anything, they underline the conflicted nature of investment bank analysts," said Mr Webb. "Many of the firms put out high valuations and then went on to advise on the merger. In that whole euphoria [surrounding the share price] a lot of shoddy analysis was done.
"The company has lost quite a lot of credibility," said Mr Gorges.
"The more deals they announced, the higher the stock price went - there was a lot of hype and expectation."
"They had some very skilful PR people."
Cracks started to appear when the price dropped to HK$16.
"It dropped to HK$16, which most people thought was a more suitable price," said Mr Gorges.
However, the company's major shareholders chose that moment to sell the stock, and the share price has been in a downward spiral ever since.
Mr Gorges said: "At around HK$16 the major shareholders decided to sell the stock, which didn't exactly inspire investors with confidence."
In October, the terms of the CyberWorks-Telstra joint venture were released after six months of negotiations, and widespread speculation that the Australian telecoms giant was using CyberWorks' depressing value to leverage more favourable terms.
Telstra acquired 60 per cent of the mobile-phone business rather than the 40 per cent originally agreed. In return for surrendering control, CyberWorks received an extra HK$1.4 billion in cash.
CyberWorks has also suffered from the negative sentiment surrounding the telecoms and technology sector, which has nosedived since last spring.
"Nothing much is going in its favour," said Mr Gorges.
As for the questions over its long-term revenue potential, Mr Gorges believes the company still has prospects in mobile and broadband.
Mr Webb argued that its fixed-line services should do better than expected.
"If there's one silver lining it's that there are only four fixed-line players," said Mr Webb. "I wouldn't be surprised if tariffs prove to be more sustained than expected."
The Network of the World (NOW) project was supposed to be CyberWorks' flagship project, but it has undergone several teething problems. Technical difficulties have plagued NOW in countries such as India, where infrastructure delays have hindered NOW setting up its broadband network.
The content produced by NOW has been panned by critics, and questions over the large sums invested in the project have been raised.
Amid all these concerns there is some good news for CyberWorks investors.
The stock gained almost 10 per cent on Thursday, and Friday saw it gain another 8.82 per cent to close the week at HK$4.62.
Mr Gorges believes sentiment on telecoms plays is turning.
"Sentiment towards telecoms stocks is generally better," he said.
C&W, furthermore, is rumoured to be selling its stake to China Mobile.
"A name like China Mobile would certainly help credibility," said Mr Gorges.
Mr Webb also believes that nothing can detract from CyberWorks' stunning takeover of C&W HKT.
He said: "Although investors have lost a lot of money, that doesn't detract from the fact that for Richard Li and the early shareholders, the takeover of C&W HKT has paid off.'
Mr Webb added: "If they hadn't succeeded with the HKT takeover the stock would probably be worth around HK$1 today."
As for the future, Mr Gorges believes CyberWorks would benefit from some new moves.
"It really needs to have some allies and some new markets to grow into," said Mr Gorges.
"Going into China would be one possibility."
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