WSJ Tech Center: CyberWorks Cancels $2.5 Billion Bond, In the Latest Setback for Troubled Firm
July 23, 2001
By KAREN RICHARDSON
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Pacific Century CyberWorks' move to scrap its US$2.5 billion 10-year bond over the weekend is the latest blow to the beleaguered telecom firm's bid to win back the confidence and investment dollars of the capital markets.
The Hong Kong company pulled the deal at the 11th hour after two weeks of priming regional and U.S. debt markets with plans to launch the biggest corporate issue in non-Japan Asia.
After news of the shelved deal, the company's American depositary receipts in New York fell 1.5% to end at US$2.71. So far this year, shares in the former highflying Internet and media juggernaut have dived 58%, ending down 1.2% in Hong Kong on Friday at 2.13 Hong Kong dollars (27 U.S. cents).
1CyberWorks' Upcoming Bond Is Receiving a Tepid Response (July 20)
2CyberWorks Scraps Its Plan for Long-Term Bond Offer (July 19)
PCCW Chairman Richard Li, son of Hong Kong magnate Li Ka-shing, will need to convince investors, many of whom are local residents who had hoped to capture a bit of the Li-family magic, that it is financially strong enough to service its loans without putting its assets on the auction block. It had hoped the bond would refinance part of the US$4.7 billion it borrowed to help cover its purchase of blue-chip telecommunications company Cable & Wireless HKT in 1999.
"Investment-grade rating or not, people clearly see PCCW's profit outlook as being seriously eroded," said Carson Cole, chief executive and head of research at DebtTraders, a U.S.-based global trader of high-yield bonds. "Undoubtedly PCCW will be able to come back to the market, but the problems it's facing today will continue to be a challenge for the next six to nine months."
PCCW announced in March that it posted a 12-month net loss of US$886 million, leaving it with a negative equity value of US$1.8 billion. Confidence in the company was further shaken when it was revealed a month later that 34-year-old Mr. Li didn't graduate from Stanford University, as his company's press materials had suggested.
The company cited "unattractive pricing" in bonds stemming from the Argentine economic crisis and emerging-market uncertainties as reasons for scrapping the deal, which initially included a 30-year tranche along with the 10-year bond. "We're exercising financial prudence, and we don't want to overpay," said PCCW spokeswoman Joan Wagner.
PCCW said it has no immediate need to seek refinancing, since the first portion of the HKT debt, US$1.5 billion, doesn't come due until 2004.
PCCW had offered a yield on the 10-year bond of 3.25 percentage points above the comparable U.S. Treasury, just before pulling the deal. Mr. Cole, for comparison, said the bond would have "started to get interesting" with a yield of four to 4.25 percentage points above Treasurys.
He noted PCCW is also obligated to cover a US$1.1 billion convertible bond due in 2005 and a US$750 million convertible in 2006.
"PCCW isn't in peril of defaulting on its debt, because it still has assets it can sell," said Jasmine Koh, Hong Kong and China telecom analyst at UBS Warburg. "But since most of those assets will be needed to service its debt, there will be less left for equity shareholders."
The company's high-tech businesses, including unprofitable Internet e-commerce operations, data centers and a massive, capital-intensive CyberPort property development, are viewed as a drag on the group's finances and a turn-off to many in the debt and equity capital markets.
Stringent debt covenants, meanwhile, prevent PCCW from tapping more than 35% of the net profits of money-making fixed-line unit PCCW-HKT Telephone Ltd. unless austere debt-to-earnings ratios are met.
"I don't believe the problem in Argentina led to the downfall of PCCW's bond deal. Many investors couldn't care less about Argentina," said Mr. Cole. "PCCW is tarnished by a lot of other problems since it's gotten into a lot of businesses outside of the straight telecom business."
Other market watchers say PCCW should employ a humbler approach the next time it taps the international debt markets, as its early proclamation this time that it would launch a 30-year, record-breaking US$3.8 billion bond was viewed by some as audacious for a first-time issuer.
"Against the backdrop of a very ambitious inaugural issue in which the market turned quite dramatically on them, it might be constructive going forward for the company to regroup, listen to what the international investors had to say, and what its bankers have to say," said Albert Cobetto, chief executive of BondsInAsia, a fixed-income securities trading platform provider.
Barclays, HSBC, J.P. Morgan Chase and Morgan Stanley were the lead managers on the deal, with the first three also on the original loan syndicate for the HKT deal.
Write to Karen Richardson at karen.richardson@awsj.com3
--------------------------------------------------------------------------------
URL for this Article:
interactive.wsj.com
Hyperlinks in this Article:
(1) interactive.wsj.com
(2) interactive.wsj.com
(3) e3-SB995822549504254465
--------------------------------------------------------------------------------
Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.
Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws.
For information about subscribing, go to wsj.com
Used with permission of wsj.com |
