PCCW (8) Squeezes By With Credit Rating
Jul 05, 2001 - 14:08:32 HKT
QuamResearch
PCCW announced that Moody's and Standard & Poor's assigned respective "senior unsecured issuer" ratings of Baa1 and BBB to PCCW-HKT Telephone. PCCW-HKT Telephone of course is not synonymous with PCCW but represents only the local fixed line business which includes local data services and IDD.
PCCW then said, "in light of these investment grade ratings and the current low interest rate environment, the Company is considering certain options to partially refinance PCCW-HKT's existing syndicated loan facilities." Of course they are! PCCW is struggling under the weight of its greed, and any chance they can get to refinance to lower the interest burden, they will take.
PCCW released some figures that would appear to make HKT look like it has really turned the curve. This would be despite a continued slide in turnover. The figures in question were the results for HKT for the 2000/01 financial year. Why didn't they release exactly such figures earlier in their own results announcement earlier this year? Our opinion is that this company simply does not have the emotional ability to be open and forthright with its part-owners.
According to PCCW, HKT's turnover fell from $15.958 billion to $15.622 billion, operating profit increased from $6.993 billion to $7.069 billion, and net profit increased (doubled) from $2.337 billion to $5.879 billion. This was because the 1999/00 year included $3.823 billion in provisions. The figures were part (presumably not all, and surely not the most juicy bits) of what was provided to the rating agencies to aid them in their decisions.
However, the numbers don't match up with previous HKT figures, so PCCW has surely shifted some things around, making it somewhat difficult to get a clear picture. The following breakdown of turnover is from the company's results filing for US listing purposes in 2000:
All Years Ending March 31
HK$ millions
Mar-00
International telecom services 11,089
Local telecom services 10,243
Mobile services
4,942
Internet and interactive multimedia 1,041
Technical & other services
995
Total Revenue
28,310
This next breakdown of the same year comes from today's announcement. Notice the numbers are significantly different, even in what one would think to be a category unaffected by the combo with PCCW:
HK$ millions
Mar-00
Local telephony services
6,777
Local data services
3,402
International telecom services 5,063
Other services
716
Total Revenue
15,958
As a result, we are not terribly impressed with today's figures since we cannot relate them to any previous numbers, other than what PCCW supplied, and so we cannot know just how well the various business segments are truly progressing.
Investors may also want to remember that if the picture is so hunky-dory, as would appear in today's announcement, why are they cutting staff?
One final little note: Moody's "Baa" rating and S&P's BBB rating are the bottom investment grade category, one above junk bond status. An investment grade is required for banks to be allowed to purchase these bonds. Moody's graded PCCW slightly higher than S&P.
PCCW's price has slipped back today after yesterday's foolish speculative jump to $2.425. S&P and Moody's may think PCCW is a step above junk, but we're more pessimistic. And with a cap of $52 billion, it's expensive scrap.
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