Price demands may delay PCCW-HKT bond launch
PCCW-HKT may postpone its bond issue if investors attempt to use the Argentinian situation to exact hard pricing, according to analysts.
Pricing on the US$ 2.5 billion issue has already been postponed to Friday or Monday - from tomorrow originally - but syndicate leaders said this did not indicate lack of interest.
"They said they needed more time because more interested United States investors wanted to have a meeting with management," bankers told a regional fund manager.
HKT executives including deputy chairman Alex Arena are at present on an roadshow in the United States, where investors are apparently demanding generous pricing to buy in a market blasted with concerns of default in Argentina and excess supply in telecommunications.
HKT was looking at pricing the 10-year portion of the deal at about 280 basis points over comparable US Treasuries before the Argentine jitters hit emerging market bonds, moving some Asian benchmarks by more than 30 basis points.
For HKT, the trend could easily push the 10-year bonds to a premium wider than 300 basis points.
"Investors are likely to demand a substantial yield premium on (HKT) bonds over its rating benchmarks, given their relatively cautious sentiment towards the (HKT) group," ING Barings analyst Eden Wong said, adding that this premium was largely driven by sentiment.
"In the absence of more negative news coming out of (HKT), we expect this premium to gradually decline over the next 12 months."
Mr Wong said a 320 basis-point premium represented "good value" for investors.
It was not quite so clear, however, whether that price was good value for HKT.
A fixed-income fund manager said: "I think they may postpone if they have to pay more than 300. They don't want extra interest payments for the next 30 years."
The telecommunications group is issuing a mix of 10- and 30-year bonds, and was previously considering raising the issue size to more than US$ 3 billion.
Goldman Sachs head of Asian fixed income research Fan Jiang said he recommended management postpone the deal if they had to pay a premium beyond 300 basis points.
"I think it's wrong to exaggerate the market risk; these things (contagion fears) come and go quickly. Inevitably you have investors use this as an excuse to push up premium," Mr Jiang said.
HKT was a "reasonably good credit story" because of the secure cash flows from the monopoly fixed-line telephone business in Hong Kong, he said.
The bond had a BBB rating from Standard & Poor's, the same as Malaysia Telekom's bond that traded at about 280 basis points over US Treasuries.
"Unless (HKT) needs the money tomorrow they should wait," Mr Jiang said, adding however that they could not wait so long as to miss the end of the interest-rate cut cycle.
A source at one of the syndicates yesterday said there were no plans to postpone the bond, pointing out that Argentine bonds moved up yesterday after parliament agreed to the prime minister's austerity plan.
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