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Technology Stocks : Pacific Century CyberWorks (PCW, PCWKF) -- Ignore unavailable to you. Want to Upgrade?

To: ms.smartest.person who wrote (2407)	9/10/2000 11:53:34 PM
From: ms.smartest.person	Respond to of 4541

PCCW investors sceptical The internet company has much to prove in light of a share price that has continued to fall, writes Rahul Jacob Published: September 11 2000 01:11GMT \| Last Updated: September 11 2000 01:29GMT During the early days of Asia's discovery of internet plays last year, Pacific Century CyberWorks, the Hong Kong internet firm started by Richard Li, had only to announce a deal - a minor share swap with another internet company, for instance - and its share price would rise. But, as many internet Wunderkinder are discovering, times have changed. Investors appear to be taking a much more sceptical view. Last month, PCCW announced details of a deal with the Australian telecoms carrier Telstra that ought to enable the company to reduce its debt burden substantially, yet the company's share price continued to drop. The deal is more substantial than many others announced last year and will garner PCCW US$3bn to help reduce the US$12bn in debt taken on to finance PCCW's acquisition of Cable & Wireless HKT, which was completed mid-August. "Even when they announced the deal, the share price fell. It means the selling pressure is very heavy," says Ronald Chan, an analyst with Dresdner Kleinwort Benson. That pressure has intensified recently amid fears that Cable and Wireless of the UK may soon liquidate part of its 20 per cent holding in the Hong Kong internet company. C&W ended up with the shares when it sold its Hong Kong arm to PCCW, which paid for it with cash and shares. C&W is expected to sell a 4.9 per cent stake. The share price was further dented on Friday by news that another sizeable shareholder, CMGI, the internet holding company, was withdrawing from a plan to establish an international venture fund with PCCW and another partner. The share price fell to HK$13.20, 25 per cent below its most recent high of HK$17.70 on August 7. Under its agreement with PCCW, Cable and Wireless has agreed to sell the initial tranche by November 15. In addition, when a six-month lock-up ends in February 2001, C&W can sell up to another 7.4 per cent. Cable and Wireless refused to comment on the PCCW share sale. "We have the option to do it and we will make the decision as and when market conditions allow," a spokesperson for Cable and Wireless in London said. PCCW's heavy debt load of US$12bn, a result of the HKT acquisition, is also attracting unfavourable attention. The merged entity has US$3bn in cash and stands to receive another US$3bn from Telstra when that deal goes through. Its announcement that it would be reducing debt further by putting more than US$1bn in debt in the IP backbone venture with Telstra, however, is something of an accounting sleight of hand. The debt may not be on the company's balance sheet, but PCCW would still need to repay that amount. "People are not 100 per cent convinced that the debt reduction will be as quick as they claim," says Francis Wong, a fund manager with American Express Asset Management. For the financial year ended March 31 2001, the merged entity will have ebitda from HKT's businesses of HK$11.6bn (US$1.49bn). Ebitda from Pacific Century is a negative HK$1.5bn, says Mr Chan at DrKB, who has the distinction of having issued the first "sell" recommendation on PCCW's shares. "PCCW's contribution in revenues, let alone cashflow, is tiny," he says. PCCW argues that the focus on the debt levels is overdone. Alex Arena, deputy chairman of PCCW's executive committee, recently told a CSFB conference in Hong Kong that he was one of a "rare breed of internet executives" at a company with more than US$1bn in cashflow. Mr Arena points out that HKT had no gearing before the takeover, which was "crazy" for a company its size. By leveraging up and spinning off assets, PCCW promises to manage the company more creatively than its erstwhile parent did. "HKT is a dinosaur. The new [PCCW] culture may be positive but that is unproven," says Mr Wong. Also unproven is whether PCCW can rejuvenate HKT's former monopoly margins that are steadily declining in the face of competition with the new economy promise of PCCW's Network of the World (NOW) broadband service. Mr Arena has said NOW, which has primarily English content, will produce offerings in the Indian languages of Tamil and Hindi and possibly even Indonesian Bahasa in an attempt to broaden its reach. For many observers, the burden of proof is now on the company to show that it can make money from their ever-expanding ambitions in the internet arena. "They have announced a lot in the past and people are now waiting for more tangible progress," says Dresdner's Mr Chan. In the new new economy, execution counts for more than newsflow. Additional reporting by Joe Leahy markets.ft.com