WRAP: Australia Telstra, HK PCCW Wrap Data JV Into Reach
July 26, 2001
Dow Jones Newswires
By GRAHAM MORGAN
Of DOW JONES NEWSWIRES
SYDNEY -- Australia's Telstra Corp. (TLS) and Hong Kong's Pacific Century CyberWorks Ltd. (PCW) have altered their pan-Asian alliance by wrapping what was to be a separate data center joint venture into their Reach Internet backbone joint venture, senior executives told analysts and journalists at briefings Thursday.
This is an addendum to "finalized" arrangements made in February, when the companies signed off on three Asian joint ventures in the fields of Internet, data and mobile communications, which analysts at the briefing said is a response to deteriorating market conditions.
Telstra and Richard Li's PCCW each own 50% of Reach and the data company, while Telstra has 60% of the mobile joint venture called Regional Wireless Company, which holds CSL, the mobile arm of Hong Kong Telecom. PCCW owns the remaining 40% stake.
From the beginning, the aim was to partially spin off the joint vehicles and list them on a regional exchange, creating equity funding for the parent companies, something Telstra can't do itself because the Australian government has a 50.1% controlling stake.
The wrapping of the data center assets into Reach suggests there will only be two initial public offerings, rather than a potential three, said one analyst at an international bank who asked not to be identified.
"This indicates that they are trying to synergize the assets, and hoping to weather the market, and won't get what they wanted for the listings," the analyst said.
Speaking at the briefing to introduce the new executives of Reach and CSL to the Australian finance community, Telstra Chief Executive Ziggy Switkowski acknowledged that initial public offerings won't happen until the market has improved.
"It's clearly deferred until the market is a more hospitable one," he said, referring to any capital raising.
Switkowski, however, still aims to make Asian operations account for 20% to 25% of Telstra's value within the next five years.
"If we took our share of the earnings before interest, tax, depreciation and amortization, or EBITDA, of CSL and Reach, that's about 6%-8% of the (current) EDITDA of the total company," Switkowski said.
"Now if you say the value is a multiple of EBITDA, and it probably is, and we want to get to 20% of value from Asian joint ventures, we're probably a third of the way there," he said. "It's clear there'll be a series of investments ahead."
Telstra Shares Slide, Underperform Market
Otherwise, details on expansion in Asia were scant with no comment on RWC's rumored US$1.6 billion bid for Singapore's second largest mobile communications operator MobileOne Asia Pte. Ltd. or on reports it is interested in a third-generation license in Taiwan.
Telstra shares closed down nine cents, or 1.8%, at a 37-month low of A$4.90 after news of the briefing filtered into the market. The benchmark S&P/ASX 200 index fell 1.1%.
Since Telstra and PCCW inked the deal, telecommunications valuations have continued to fall, resulting in Switkowski reducing previous forecasts of earnings from Telstra's stakes in the joint ventures, for which it paid a combined US$2.43 billion.
Earlier this month, Telstra released forecasts that Reach would make EBITDA between US$400 million and US$500 million in 2001, while RWC would likely report EBITDA between US$150 million and US$175 million.
Merrill Lynch analysts said in a research note that they were disappointed with the company's forecast for Reach, which they had expected to generate around US$533 million, but said the figures for RWC were broadly in line with their US$163 million forecast.
Other executives at the briefing were Reach Chairman Gerry Moriarty, Reach Chief Executive Alistair Grieve, RWC Chairman Dick Simpson and CSL Chief Executive Hubert Ng.
-By Graham Morgan, Dow Jones Newswires;
61-2-8235-2962; graham.morgan@dowjones.com
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