Li Family Telecom-Asset Swap Has Hong Kong Buzzing (Update3)
By Paul Scanlon and Thomas Lau
Hong Kong, Feb. 23 (Bloomberg) -- Hong Kong is abuzz about an asset swap between the city's two biggest telephone companies whose owners happen to be father and son.
Less than a month after billionaire Li Ka-shing said there was ``little possibility'' that his Hutchison Whampoa Ltd. would buy a stake in his son Richard Li's Pacific Century CyberWorks Ltd., that's just about what happened.
Hutchison accepted CyberWorks shares as payment for a rooftop satellite dish business worth $103 million, giving it a 0.8 percent stake. CyberWorks shares jumped 4 percent on speculation Li will add to his stake as about $150 million of shares in the two companies changed hands, accounting for a fifth of trading in all stocks.
``If the Li family does different businesses, I don't think that would be a problem,'' said Sin Chung Kai, the Hong Kong Democratic Party's spokesman for economic affairs. ``But now they are doing the same thing. It reduces competition and ultimately reduces choices for consumers.''
Hutchison, whose Hutchison Telecommunications is the city's second-biggest phone company after CyberWorks, denied a conflict of interest and said it won't buy any more of the company.
``I'm not sure who's rescuing who,'' Hutchison Managing Director Canning Fok told reporters. ``To sell the business for $103 million is extremely beneficial to Hutchison. The company isn't a necessary asset for Hutchison.''
Back Home?
Fok's comments did little to quell speculation that the move is a first step by Li Ka-shing, Hong Kong's best-known tycoon, to bolster his son's company after its shares fell 70 percent last year. Fok said Li, Hutchison's chairman, was told about the transaction just two days ago.
``We have to look at it carefully,'' said Emily Lau, leader of Hong Kong's Frontier Party. ``If they start cooperating, it could stifle free competition.''
The transaction returns to Richard Li control of Hutchison Corporate Access, which his Pacific Century Group sold to Hutchison in 1995 for HK$581 million ($75 million). Hutchison Telecommunications Technology Investments Group, which controls HCA, is the unit being acquired.
``It's more of a deal to demonstrate symbolic support for CyberWorks from Li senior, but not at the cost of Hutchison,'' said David Webb, publisher of the independent Web site Webb- site.com. ``They're paying over the odds to buy the support of a well-known company.''
It wouldn't be the first time that investors drove up CyberWorks shares on hope for a helping hand from his father, who previously bankrolled his son's creation of Satellite Television Asia Region Ltd.
The stock surged 19 percent in two days last month on speculation Cable & Wireless Plc found a buyer for its 14.9 percent stake in CyberWorks. Traders said that speculation was fueled in part by a public lunch held by father and son at the Shangri-La Hotel.
Ten days later, the elder Li rejected speculation that he or his company would buy a CyberWorks stake from the U.K. phone company. ``I believe there is little possibility that Hutchison will do it,'' he told reporters. ``Hutchison and CyberWorks are competitors.''
He also added a caveat. ``Whether I, myself will buy the stake, it's my own business.''
`Interesting' Price
Hutchison's Fok said talks began about the transaction two weeks ago at the behest of CyberWorks. Hutchison agreed because CyberWorks stock trades at a ``very interesting'' price, Fok said. CyberWorks was the worst-performing stock in Hong Kong's key index last year.
Some investors downplayed the importance of the transaction.
``It will take much more to get investors excited before they start to buy CyberWorks again,'' said Yvonne Leung, who helps manage $2 billion in Asian investments at Towry Law (Asia) Ltd. in Hong Kong. ``Don't forget, the smaller guys have been burnt very badly on this stock.''
That kind of assessment wasn't enough to hold back many investors today. CyberWorks shares rose as much as 4.6 percent to HK$4.575, and was recently quoted at HK$4.55. That's a fraction of the peak last February of HK$28.58. Hutchison fell 1.4 percent to HK$90.50.
``The initial reaction to most people is that this transaction is simply a bailout of Richard Li by his father,'' said K.Y. Ng, an analyst at G.K. Goh Securities. At the same time, however, ``the deal makes financial sense for both parties.''
HCA has about 70 percent of the rooftop satellite communications market in Asia and about 200 multinational customers in more than 40 countries. It employs 70 staff.
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