PCCW-HKT Cancels Bond; Must Hope For Investor Indulgence
Updated: Monday, July 23, 2001 03:28 AM ET
HONG KONG (Dow Jones)--Deteriorating market conditions forced Hong Kong telecom company PCCW-HKT to cancel a planned US$2.5 billion 10-year bond issuance Friday, pushing it to wait for better times to sell such a large bond.
But bankers and investors Monday said if the company wants to try again when market sentiment improves, they had better hope investors show some indulgence for the last- minute cancellation.
Pulling the plug just as the company was due to price the bond "will trigger some investors to have a bad image (of PCCW) but if it forced itself to issue at a high premium" the image could have been even worse, said one investor.
Investors will have to decide whether it was the right thing to push the bond deal despite volatile market conditions and cancel at the very last minute or showed company management's poor vision, observers said.
Whichever the case, the company will have to start doing its marketing work at home. The fact that PCCW-HKT failed to attract significant demand on its home turf also contributed to the slow book building elsewhere, said Fan Jiang, head of Asian credit research at Goldman Sachs.
"If there isn't good momentum here, it's difficult to get good momentum elsewhere," he said.
Asian bonds comparable with PCCW-HKT rallied Monday, partly on that news. The spread on Hong Kong bonds, like those of Hutchison Whampoa and Citic Pacific, to U.S. Treasurys tightened by 25 to 30 basis points from Friday.
Such an immediate relief on the market shows that there wasn't all that much appetite in the market for PCCW-HKT's bond in the first place.
However, traders say that the relief was also linked to other issuers putting their bond offers on hold as well as improved sentiment in Argentina.
PCCW Stk Hits New All-Time Low
Following news of the scrapped bond, the parent company Pacific Century CyberWorks Ltd.'s (PCW, news, msgs), stock on the Hong Kong Hang Seng Index hit a new all-time low of HK$1.98. However, analysts said the stock should find enough support to hold around this level.
The fixed telecom business itself is worth at least HK$2 per share, and even though sentiment for the company remains sour, one has to attach some value to its other businesses. Those include a 40% stake in a mobile joint venture with Australia's Telstra Corp. (TLS, news, msgs) and 50% in a broadband backbone network with the same partner, analysts said.
"PCCW is everybody's punch-bag at the moment, but if the share price drops below HK$2 it's a fantastic buying opportunity," said Voon San Lai, who follows the company for BNP Paribas Peregrine.
By 0701 GMT (3:01 a.m. EDT) the shares were down 6.35% at HK$1.99 from Friday's close of HK$2.125.
Through its fixed-line unit, PCCW was seeking to take advantage of the low interest rate environment to raise as much as US$3.8 billion to refinance the three- and five-year portions of its bank loans.
But the low rate environment was rocked by Argentina's financial woes, which rippled throughout emerging markets. Such jitters didn't deter PCCW-HKT from pushing ahead with the offer and announcing it was ready to pay as much as 312.5 basis points over U.S. Treasurys, significantly more than the price talk before Argentina's problems began.
Even before Argentina's financial woes worsened, analysts had said that US$2.5 billion was an ambitious size for an issuer like PCCW, even through its HKT unit.
So when concerns that Argentina may default on its debt arose, the window of opportunity for PCCW-HKT became smaller and smaller. Still, the company and its lead managers Morgan Stanley, Barclays Capital, HSBC and J.P. Morgan, were determined to push the deal through.
Asian yield spreads over U.S. Treasurys surged before PCCW even started its U.S. road show and the company's determination to go ahead with its sale could be viewed as lack of foresight, analysts said.
First the 30-year tranche was scrapped, then the amount was downsized while the spread was rising, to finally end up on the cutting room floor.
PCCW said Friday in a statement that "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."
Indeed, investors were asking for a spread of 325 basis points Friday, compared with the company's earlier price guidance of 312.5 basis points.
To keep the spread on the tighter end, the company even talked about downsizing its bond offer to US$1.0 billion late Friday, before the deal was canceled all together.
PCCW-HKT didn't attract enough demand despite its investment grade credit rating. Analysts said that the company's attempt to sweeten the offer with an interest rate step-up clause in case of downgrades failed to reassure investors concerned that HKT is the parent company's cash cow, which could be forced to contribute to the parent's finances in case of difficulty.
-By Mia Trinephi and Anette Jonsson, Dow Jones Newswires; (+852) 2802 7002; mia.trinephi@dowjones.com; anette.jonsson@dowjones.com |
