CyberWorks hits 52-week low on cancelled bond
Aborted US$2.5b bond deal seen as a no-confidence vote
By
Audrey Tan
in Hongkong
PACIFIC Century CyberWorks yesterday plumbed a 52-week low of HK$1.97 when investors dumped the stock on news that CyberWorks had cancelled an intended US$2.5 billion bond issue over the weekend.
While the company cited emerging market risk, such as concerns over Argentina, as the main factor, investors read the bond cancellation as a no-confidence vote for CyberWorks.
Bertrand Chui, analyst at WorldSec International, said: 'What we are seeing is that investors don't seem to like the credit risk of CyberWorks.'
The stock was the fourth most heavily traded in Hongkong yesterday, with turnover of HK$170.3 million (S$39.8 million).
It ended 4.7 per cent down at HK$2.025, despite analysts saying that CyberWorks was right not to proceed with the bond issue at the rates investors were demanding.
The cancellation comes after weeks of news that CyberWorks was planning to issue the largest bond offering ever in Asia, outside of Japan, at US$2.5 billion. But the company was said to have had to offer progressively higher and higher yields to attract investors.
It was then said to be planning to cut the bond offering to just US$1 billion and pay over 300 basis points above the 10-year US Treasury rate.
But on Friday night, CyberWorks issued a short statement saying that despite strong investor interest in its debut bond offering, it has decided not to proceed.
'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,' it said.
Analysts, such as those at Merrill Lynch, said that cancelling the bond issue was a sensible decision, given that CyberWorks had no immediate need to refinance its US$4.7 billion loan.
The first tranche of the loan is not due till 2004, and CyberWorks can always come to the market later when conditions are less volatile, they said.
But the news was still viewed negatively by the market. Mr Chui said: 'People are selling more on sentiment, because they see a change in fundamentals. They see this as a failed attempt by CyberWorks.'
Other analysts say that CyberWorks had been too ambitious in planning such a large bond offering. One analyst said: 'Basically, it was too large an issue for a first-timer. The company was very ambitious and the market conditions changed on them.'
Shaky economic conditions in Argentina and the concern over Latin American debt repayment created a ripple effect on emerging market risk over the last few weeks.
But Albert Cobetto, chief executive of BondsInAsia, said: 'It's an over-exaggeration to say that what happened to CyberWorks is an indication of the market. A smaller transaction for a company with different credit risk may have gone through.'
CyberWorks received a triple B rating from Standard and Poor's, signifying a stable outlook for cash flow from its Hong Kong Telecom unit.
But Worldsec's Mr Chui said: 'International and US investors have many other options for bonds with a BBB rating. It is apparent that CyberWorks did not get a good response from bankers.'
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