PCCW under pressure over C&W approach
By Rahul Jacob in Hong Kong
Published: February 7 2003 12:19 | Last Updated: February 7 2003 12:19
Hong Kong's dominant telephone company, on Friday was seeking to contain the damage after news that it had approached Cable & Wireless to acquire the British telcommunications group prompted Moody's, the rating agency, to put PCCW's credit rating under review.
The Hong Kong stock exchange on Friday also sought more information about why the company had not disclosed details of its overtures to C&W earlier.
Negative analyst comments about the wisdom of PCCW going on the acquisition trail again three years after buying C&W's Hong Kong business for US$28bn in cash and shares resulted in PCCW's share price dropping 1.65 per cent to HK$5.95.
Despite having made strides in reducing its debt from the huge acquisition, PCCW still has US$4.3 bn in net debt. On Thursday, the Financial Times reported that PCCW had approached C&W with an offer that valued the company at US$3.9bn.
PCCW's own market value is about US$3.6bn. Its shares have fallen 39 per cent in the last 12 months, a tumultuous period for telcos worldwide, as investors have focused on the lack of growth prospects for PCCW in its home market Hong Kong and the need for continued cost-cutting and debt reduction.
Analysts said that news of PCCW's interest in buying C&W lacked strategic logic. "Richard Li (chairman of PCCW) could get access to the capital if he wanted to, but from a shareholder and bondholder's perspective, this is bad news. He is not focused where the market wants him to be focused," said an analyst in Hong Kong. "Maybe he looks at it and thinks it is a cheap asset."
In a statement, Moody's said that it was putting PCCW's core telephone business in Hong Kong under review because this "changed strategy could at some point in the near future result in increased demands for distributions from HKT to PCCW and/or increase group debt."
In response, PCCW said it was "disappointed" that Moody's had placed its rating under review, "particularly in light of the fact that we have made no offer to Cable & Wireless."
PCCW was also asked by the Hong Kong stock exchange on Friday to explain the variance between a statement it made to the stock exchange on Thursday morning and a statement last night made to UK authorities. On Thursday morning, PCCW said in a statement that it had not made an offer for C&W and was not in discussions to acquire the company.
A PCCW spokeswoman on Friday said that the subsequent statement from the company confirming details of a preliminary approach to C&W in a letter dated December 31, 2002 was "an expansion" of the earlier statement because UK regulatory authorities sought details of PCCW's future intentions with regard to C&W and specific dates of any correspondence between the two companies.
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