Telstra feels the heat as PCCW drops bond issue
Jane Boyle with wires
23/07/2001
Volatile market conditions have forced Mr Richard Li's Pacific Century CyberWorks to pull plans for a $US2.5 billion ($4.9 billion) bond issue, putting fresh pressure on Telstra's Asian mobile phone joint venture with the company.
This setback to PCCW's refinancing efforts comes amid growing speculation that Telstra will write down the value of its 60 per cent-owned joint venture with PCCW, Regional Wireless Company, by $1billion to $1.5 billion in its full-year accounts.
PCCW, which lost $US886 million last year, planned the bond issue to help refinance a $US4.7 billion loan taken out for its $US28.5 billion cash-and-scrip purchase of Cable & Wireless HKT Ltd last year.
It finished a road show in New York to market the issue on Friday.
Weaker demand for emerging market securities and a rise in yields as a result of the fall in Argentine bonds had forced the company to scale back the issue to $US1.5 billion earlier on Friday.
In addition, the company had lifted the note's yield to 325 basis points above US Treasuries.
These conditions also unnerved many investors, with some concerned the bond payments would put increasing pressure on PCCW's cash flows.
Late on Friday the company said it had shelved the issue altogether. "Despite strong investor interest in a potential debut bond offering, the company has decided not to proceed with a bond offering at this time," it said.
"Specifically, present volatile bond market conditions arising from Argentina and other uncertainties in the emerging markets have resulted in potential pricing that the company finds unattractive at this time in comparison with its existing financing.
"PCCW is in sound financial condition and has no immediate need to refinance its debt. The management of PCCW will continue to evaluate and assess its refinancing options to seek terms which are favourable and which enhance benefit to shareholders."
Meanwhile, Telstra shares slipped another 2¢ on Friday to close at $5.01, more than a third off its year-high of $7.22.
CSFB recently estimated the company could write down its 60 per cent stake in Regional Wireless Corp from $US1.68 billion to $US900 million.
Telstra began sounding out investor interest in a $500 million issue of seven-year bonds last week, to refinance some of its debt.
Westpac Institutional Bank, UBS Warburg, RBC Dominion Securities and Commonwealth Bank were appointed lead managers of the Telstra issue, which the company said could be launched this week.
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