Telstra Says Will Consider IPO For Reach, Other J/Vs
Updated: Wednesday, February 7, 2001 04:35 AM ET
SYDNEY (Dow Jones)--Telstra Corp. (TLS, news, msgs) said Wednesday that along with Hong Kong's Pacific Century Cyberworks Ltd. (PCW, news, msgs), it still plans to list its joint venture operations.
But Telstra executive Gerry Moriarty, who will chair the Internet protocol backbone company - the biggest of the three ventures - said there is no time frame for the likely initial public share offers.
Moriarty also said the IPBC group, to be known in the market as Reach, could also be developed with the inclusion of a third partner rather than an IPO.
"Both of the shareholders are committed to taking the ventures to market when market circumstances are right," he told reporters after Telstra announced the strategic alliance with PCCW is in place and the joint venture groups will start operations Thursday.
"We also recognize we have a variety of options for growing the biggest of the ventures, Reach," he said.
Moriarty said while the two companies had been approached by potential partners in Reach, no talks are currently underway.
"The nice thing about Reach is that in fact we are approached frequently by others who would like to be part of the venture. So it is nice to be wooed," he said.
Asked if Reach could list in calendar 2001, Moriarty said it wasn't appropriate to be specific about the possible timetable.
"In the case of Reach we have said to the market and we have said to you folk that one of the other opportunities is to take in another partner. And the timing of another partner or an IPO are things that the board will agree as we go forward."
When asked if the two companies still valued Reach at US$10 billion, and would only proceed with an IPO if it raised at least US$1 billion, Moriarty said previous references to values should be regarded as historic.
"The importance is the value at the time that we go to an IPO. And it is premature to comment on values until we have an operational business plan approved by the boards, and we will constantly be assessing market circumstances."
He confirmed that Reach and the other two joint ventures are based in Bermuda. Media reports in Australia late last year reporting that the Telstra joint ventures would be based in Bermuda led to some market and political criticism that a company 50.1% owned by the national government would operate out of a tax haven.
Moriarty also said Reach is a substantial business with large profits and cash flow that will allow it to keep growing without an IPO, contrary to recent media reports that the company needs an IPO to continue growing.
"This is simply not correct. It has the capability to fund the capital expenditure that we anticipate in the business plan," he said, with capex demand at about 10-15% of revenues.
"It is very capable of funding that and producing quite attractive profits. So an IPO is not a necessary part of the generic growth of Reach."
Some analysts have valued Reach at up to A$18 billion but recently doubted if an IPO will be held this year.
Brokers said Telstra shares ended lower Wednesday as investors focused on the PCCW partnership. Telstra shares ended 1.3%, or 9 cents, lower at A$6.88, while its next biggest local rival, Cable & Wireless Optus Ltd. (A.CWO, news, msgs) gained 2.8%, or 11 cents, to A$4.05 as its sale negotiations continued.
Investment bank UBS Warburg said Wednesday in a briefing note to clients that the recent fall in PCCW's share price could put more negative focus on Telstra.
"This will accentuate market concerns over Telstra's Asian strategy, and will reinforce the need for Telstra to reveal details to the market over the next several weeks," it said, adding that a Reach float isn't likely in 2001.
Reach's chief executive will be Alistair Grieve, who was most recently chief operating officer of Malaysian telecommunications company Maxis Communications. Grieve was Hong Kong Telecom's deputy chief executive from 1995-99 when that company was owned by Cable & Wireless PLC (CWP, news, msgs) and before the HKT takeover by Richard Li's PCCW.
-By Ian Pemberton, Dow Jones Newswires;
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