PCCW Plunges as Much as 12.2% After C&W's CB Issue (Update3)
Apr 03, 2001 - 15:42:15 HKT
Quamnet News Service
Pacific Century CyberWorks (0008), a major Asian telecommunications company which owns Hong Kong's largest phone company, fell as much as 12.2 percent after a one-day suspension to announce Cable & Wireless selling of bonds convertible into PCCW shares.
At 3:37 p.m. local time, PCCW shares were quoted at HK$2.725, down 11.4 percent from last Friday. The stock had traded as low as HK$2.70, its lowest since August 1999. Turnover was HK$836.5 million, compared with the total market turnover of HK$6.04 billion.
PCCW's American Depository Receipts ended at HK$2.70 overnight in the U.S. The stock closed at HK$3.075 before suspension.
The stock topped the short-selling list in the Hong Kong market by midday, with HK$168.9 million shares sold short. That's 64 percent of the market's total short sales of HK$263.5 million.
Sellers of PCCW shares included large brokerages Merrill Lynch, BNP Peregrine, Deutsche Bank, Goldman Sachs and Morgan Stanley Dean Witter while buyers are mainly retail investors, traders said. There were not obvious short covering on the stock, they said.
Herbert Lau, head of research at Celestial Securities Ltd., said the sharp fall in PCCW prices was attributable to short selling on the stock. According to Lau, hedge funds started to sell short PCCW shares at HK$5 to HK$6, making considerable accumulated gains so far. "Hedge funds short sold the stock more aggressively as they can cover the position with the convertible bonds, causing the stock to plunge," he said.
Still, Lau sees limited downside for the stock, expecting it to find strong support at HK$2.50. Brokerages generally valued PCCW at between HK$3 and HK$3.50 per share, which makes it attractive at the current price level, he said.
Bryan Leung, content development analyst at CASH on-line Ltd., expects PCCW shares to find support at between HK$2.60 and HK$2.70. "The stock lacks a rising momentum," said Leung, adding that any rise in its prices will trigger arbitrage activities.
C&W, the second-largest shareholder of Pacific Century CyberWorks (0008), said yesterday it is selling a bond convertible into its entire 14.7 percent stake, or about 3.259 billion shares, in the Hong Kong-based communications company, raising net proceeds of US$1.504 billion.
C&W said the bond will carry a zero coupon rate, and that the minimum exchange price has been set at HK$3.60. The bond will be traded in Luxembourg. If not exchanged, the bonds will be redeemed at par on June 9, 2003, when it matures.
C&W has set the conversion price for the bond at HK$3.60, the bottom of the targeted price range of HK$3.60 to HK$3.80, according to UBS Warburg, sole bookrunner of the issue.
The issue includes a call option which is callable throughout life on condition that PCCW shares are trading above 120 percent of the conversion price, which is HK$4.32, for at least 15 trading days during any period of 20 consecutive trading days.
The bond has been fully subscribed, with European investors responding most actively to the issue, according to a source close to the deal. The company, however, hasn't disclosed the level of over-subscription.
PCCW's Chairman Richard Li told reporters yesterday that the bond is being sold to fund managers and other institutional investors, instead of strategic investors. Hong Kong-based fund managers, meantime, have expressed mixed interest in the bond.
Chris Choi, director of Pacific World Asset Management Ltd., said many traditional funds may not be interested in buying the bond, as it offers zero interest payment. Investment banks which need PCCW shares to issue warrants and derivative products, hedge funds and some professional speculators may have an interest in the bond, he said.
Indeed, the bond sale is targeted at the hedge funds and arbitrageurs, which will find the pricing appealing, according to a person familiar with the transaction.
The bond sale is expected to be completed on or before April 12. The bond has been rated A2 by Moody's and A by Standard & Poor's.
The bond sale came days after PCCW posted a record US$886 million net loss for 2000, and wrote off US$22 billion of HKT goodwill against its reserves, leading to a shareholders' deficit of US$1.8 billion. The announcement made it easier for potential investors in PCCW to fix a price for its shares. |
