Nasdaq flops cost CyberWorks US$447m
HUI YUK-MIN
Pacific Century CyberWorks has made provisions totalling US$667 million in its annual results, following the huge drop in the valuation of Internet companies last year.
Of the sum, the company took provisions of US$627 million for losses on the value of its investments in both listed and unlisted securities.
Group chief financial officer David Prince said most of the investment losses were provided for the company's interest in Nasdaq-listed companies CMGI and SoftNet.
CyberWorks has a 3.4 per cent stake in Internet conglomerate CMGI and a 23 per cent stake in cable broadband enabler SoftNet.
The total cost of these investments was US$479 million. However, those shares were worth only US$31.71 million at the end of last year, representing a drop of 93.3 per cent in the value, or US$447.29 million, of the two investments over the period.
Among CyberWorks' 45-strong investment portfolio, the company holds substantial interests in Hong Kong-listed Internet and technology companies such as Hikari Tsushin International, Star East Information Technology and Outblaze.
Mr Prince said the booking of unrealised losses in the company's investment portfolio was a prudent move, as the company believed the decrease in the values of its investment portfolio would become permanent.
CyberWorks is the latest company to reveal that it has taken a big hit from the collapse in the technology and Internet sectors. Two weeks ago, Nasdaq-listed Internet conglomerate Chinadotcom revealed it had booked US$128 million provisions for the drop in values and goodwill impairment of its investments.
As expected, CyberWorks wrote off the entire goodwill amount of US$22 billion from its purchase of Cable & Wireless HKT against reserves.
The write-off put CyberWorks in a position of negative shareholder equity totalling US$1.8 billion, the company said.
Instead of adopting the Hong Kong Society of Accountants' latest guidelines requiring companies to amortise goodwill, CyberWorks decided to write off the US$22 billion goodwill from its reserves. The company said that because it was reporting what were last year's results, it was not covered by the new guidelines.
Under the new accounting guidelines, which came into effect at the beginning of this year, companies are required to capitalise goodwill as assets, and amortise them over a period of up to 20 years.
Companies are no longer meant to eliminate goodwill against shareholders' equity or reserves. By eliminating HKT's goodwill against reserves in one go, CyberWorks would be able to save about US$1.1 billion in recurrent annual amortisation charges.
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