CyberWorks aims to cut unit's debt by a fifth
September 27, 2001
(HONG KONG) Pacific Century CyberWorks Ltd aims to cut debt owed by its PCCW-HKT Ltd unit by a fifth to relax restrictions on its share of the phone company's profit, a Merrill Lynch & Co analyst said in a report.
HSBC Holdings Plc, J P Morgan Chase & Co and other banks lent PCCW-HKT US$4.7 billion in February to repay debt raised by CyberWorks for its purchase of Hong Kong's biggest phone company last year.
To get the loan, CyberWorks agreed to restrict how much of HKT's profit it can use for Internet and other investments.
'Management believes that it can bring debt down dramatically over the next few years and hence move into a looser bank covenant,' credit analyst Jason Carley said in a research note he wrote after meeting CyberWorks directors.
CyberWorks, controlled by Richard Li, cancelled a US$2.5 billion sale of 10-year bonds in July after investors demanded a higher interest rate than it was prepared to pay. Proceeds from the bond could have been used to repay part of the loan, some of which is due in 2004, to make it easier to get a bigger share of HKT's earnings.
Under existing restrictions, CyberWorks can receive as much as 35 per cent of the dividends distributed by PCCW-HKT while the unit's debt exceeds 3.5 times its earnings before interest, tax, depreciation and amortisation. The phone company's current debt to Ebitda ratio is more than four times.
Company executives now plan to forego dividends from HKT so it can use these to repay the debt, Mr Carley said. CyberWorks hasn't received a dividend since February 2001, he said. - Bloomberg
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