HK Sunday Fails To Submit Bond For License; Pays Cash
Updated: Tuesday, October 23, 2001 08:22 AM ET
HONG KONG (Dow Jones)--Sunday Communications Ltd. (SDAY, news, msgs) was forced to pay cash for its third generation wireless operating license upfront after it failed to provide a five-year performance bond as a guarantee Monday.
Sunday shrugged off the mishap by saying it simply ran out of time to arrange a bond, but analysts were a bit more skeptical and said the failure reflected badly on the company.
"It doesn't mean (the company) has a near-term liquidity crisis, since it was obviously able to raise the cash. But in the medium term it is definitely a concern, since it could mean that bankers don't have faith in the company," said one analyst who declined to be named.
The Office of the Telecommunications Authority appeared pleased, however, and noted that the cash payment will reduce the risk for the government and allow it to earn additional interest.
It therefore allowed Sunday to pay HK$250 million cash to cover the fixed annual fee of HK$50 million for the first five years of the license period. The other three license winners submitted HK$250 million bonds.
Since the bonds are meant to be a rolling guarantee over the 15-year license period, Sunday will next year submit a performance bond to cover the minimum payment in year six. The performance bond will then be increased each year until it too covers five years, an OFTA spokeswoman explained.
"I have considered the special circumstances of Sunday 3G (and) I consider that it would be in the public interest to award four licenses promptly to ensure competition in the market," said Anthony Wong, OFTA's director general.
"Sunday 3G's license obligations in all other respects remain the same as those of the other 3G operators," he said.
The OFTA release didn't specify the reason why Sunday was unable to provide the bond, but a Sunday spokeswoman said its decision to pay cash was a timing issue. The company had expected the licenses to be granted at the end of the year, and when it was notified three weeks ago that it would happen on Oct. 22, it didn't have enough time to arrange a performance bond with its bank, she said.
"We are also confident about our cash position and that's why we decided to make an upfront cash payment of the spectrum utilization fee for the first five years," the spokewoman said.
Peter Milliken, telecom analyst with Lehman Brothers, said the cash payment reflects poorly on the company, however. "The company will be loosing value since it will miss out on interest income," he said.
Investors showed no immediate concern Tuesday, though, as Sunday's share price gained 3.5%, or 1 HK cent, to 29.5 HK cents. Still, it lagged behind the wider market where the Hang Seng Index jumped 4.3%, and only 39 trades were conducted in Sunday's stock during the session.
Meanwhile, Sunday's spokeswoman said the company has HK$1.25 billion in cash and unused credit facilities after the upfront payment to OFTA. She also noted that Sunday won't have any capital expenditures relating to its 3G network in Hong Kong until 2004. The company plans to roll out the network in either 2004 or 2005.
Analysts said Sunday, as the fifth largest of Hong Kong's six incumbent mobile operators, definitely has the weakest financial position of the four 3G license winners. This might have led the banks to charge so much for the bond guarantee that Sunday opted to dip into its own cash, one analyst speculated.
Most of the other 3G licenses were allocated to companies with powerful backers. Hutchison 3G HK Ltd. is about 75%-owned by Hutchison Whampoa Ltd. ( H.HUW, news, msgs), while Japan's NTT DoCoMo Inc. (J.NTX, news, msgs) holds the remaining stake. Hong Kong CSL Ltd. is a 60-40 joint venture between Australia's Telstra Corp. (TLS, news, msgs) and Pacific Century CyberWorks Ltd. (PCW, news, msgs). The local 3G unit of SmarTone Telecommunications Holdings Ltd. (H.SMR, news, msgs) also received a license.
-By Anette Jonsson, Dow Jones Newswires; 852-2802-7002; anette.jonsson@ dowjones.com DOW JONES NEWS 10-23-01 08:01 AM |
