Hutch/PCCW Deal: Sins of Son Visited on Father? (Update1)
Feb 23, 2001 - 16:42:59 HKT
Quamnet News Service
What's good for the son is good for the father...right?
Not necessarily, say analysts, commenting on the sale by Li Ka-shing's Hutchison Whampoa Ltd. (0013) of a small telecommunications asset to son Richard Li's Pacific Century CyberWorks (0008) in return for a less than 1 percent stake in PCCW.
"The deal will definitely boost PCCW's share price amid expectations that the two companies will co-operate further, including the possibility that Hutch will buy Cable & Wireless's PCCW shares," said Patrick Yiu, senior research manager at Kingsway SW Securities Ltd.
For Hutchison, though, having a roughly 0.84 percent stake in PCCW won't yield any short-term benefits, Yiu said. Not only are investors fiercely negative about the stock, but Hutch's stake comes with a one-year lockup provision.
What's more, some cynics will see any sort of Hutchison involvement as the best reason yet to disbelieve the assurance given by the elder Li just after the Lunar New Year that it would be ''almost impossible'' for Hutch to take a stake in PCCW.
"Some investors are worried that Hutch may buy Cable & Wireless's PCCW shares, which could dampen Hutch's own share price," said Caster Pang, assistant manager of Tingkong-RexCapital Securities International Ltd.
So while PCCW shares rose 4 percent to close at HK$4.55 today, Hutchison dropped 1.1 percent to HK$90.75.
Yiu said the ultimate determining factor of PCCW's share price in the near term will be the arrangements that Cable &Wireless, its second-largest shareholder, makes to unwind its 15 percent stake in the company. Worries that the British group can't find buyers at an advantageous price have kept PCCW shares struggling to stay above HK$4 since the start of the year.
Ben Kwong, associate director at KGI Securities (H.K.) Ltd., concurred, saying he expected PCCW to remain boxed in between HK$4 and HK$5 until the C&W situation is sorted out.
Hutchison (0013) yesterday sold Hutchison Telecommunications Technology Investments (HTTI), its satellite-based network solutions unit, for HK$803.4 million, in the form of 183.6 million new PCCW shares valued at HK$4.375 each. PCCW said that as part of the deal it was also taking over a HK$546 million shareholder loan.
Hutchison Managing Director Canning Fok said the price puts HTTI on a price/earnings ratio of about 60 times -- "good" considering the recent rout of global telecoms stocks.
The deal had nothing at all to do with the father-son relationship between Li Ka-shing and Richard Li, he insisted. In fact, the transaction, minuscule by Hutchison standards, was brought to the elder Li's attention only two days before being concluded, he said.
What's now known as HTTI was founded in 1994 by Richard Li's Pacific Century Group, the parent of PCCW, and sold to Hutchison in 1995 for HK$581.1 million -- essentially a loan, according to observers, since the amount was almost the same as what the younger Li invested in the firm.
By the same token, these people say, the difference between what PCCW is paying now to take back the assets and the sum it received for them six years ago really deserves to be seen as an interest payment.
Fok said it was decided to sell the business because it no longer fits the conglomerate's global telecoms strategy since the foundation of Hutchison Global Crossing.
The satellite communications division of HTTI, Hutchison Corporate Access, recorded EBITDA (earnings before interest, tax, depreciation and amortization) of HK$30.5 million and after-tax profit of HK$14 million on revenue of HK$307.7 million during the last financial year.
HCA is focusing on building in-country operations and is expected to complement the international services of Reach, the Internet Protocol backbone venture between PCCW and Telstra Corp., according to PCCW.
Asked if Hutchison would sell more assets to PCCW in future in exchange for more shares, Fok said: "I can't see anything we want to sell."
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