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Technology Stocks : PCW - Pacific Century CyberWorks Limited -- Ignore unavailable to you. Want to Upgrade?

To: ms.smartest.person who wrote (1032)	4/9/2001 11:32:44 AM
From: ms.smartest.person	Read Replies (1) \| Respond to of 2248

Hong Kong Exchange Is Cleared Of Unfairly Favoring CyberWorks April 9, 2001 Money & Investing By GREN MANUEL Staff Reporter of THE WALL STREET JOURNAL HONG KONG -- The city's stock exchange has been cleared of charges it unfairly favored tycoon Richard Li's Pacific Century CyberWorks Ltd. when it secretly altered rules to accommodate CyberWorks after it bought Cable & Wireless HKT Ltd. in the largest takeover seen in Asia outside Japan. On Friday, the city's Securities and Futures Commission sent a letter to legislators who earlier raised the alarm over the apparent agreement between the exchange and PCCW to create a unique regulatory arrangement for the company after the US$29 billion takeover left PCCW with more debts than assets. First details of the agreement emerged in the days after PCCW announced its annual results on March 28. The letter informed the legislators of the results of an investigation into the PCCW agreement and other recent treatment of companies with negative assets. While clearing the exchange of any wrongdoing, the city's top securities regulator criticized it for making ad-hoc decisions, saying it lacked a consistent policy for companies in this position. With PCCW's chairman, Mr. Li, already accused of receiving favorable treatment from Hong Kong authorities, including a lucrative high-technology property development awarded by the Hong Kong government without open tender, the suggestion that he received special treatment from the exchange has touched a raw nerve in a city that claims to be one of the few places in Asia with a level playing field. PCCW's management insists that the negative net assets are a bookkeeping issue, with no impact on operations. But exchange rules say any deal exceeding 15% of net assets must be disclosed to shareholders and any deal above 50% of net assets must be put to a shareholder vote. A normal application of the asset test would have meant "they would have had to disclose every single transaction -- even just buying some PCs," said David Chin, an executive director at UBS Warburg, which advised PCCW in its dealings with the exchange. Although the company approached the exchange last April for a waiver as it geared up for the takeover, it was granted only in late October, after extensive negotiations. Mr. Chin said this meant PCCW was in technical breach of exchange rules for at least two months. PCCW and the exchange then agreed to a unique regulatory framework in which the company would inform the exchange of any deal exceeding 2 billion Hong Kong (US$256.4 million) and the exchange would then make a ruling on whether disclosure or shareholder approval was needed. Mr. Chin said he believed the HK$2 billion was a negotiated figure not based on any formula and that PCCW had wanted a "somewhat higher number." The original deal was cleared at the time by the SFC and lasted until the company declared its annual results. It is currently being renegotiated. Crucially, the waiver allowed PCCW in February to buy a satellite business from Hutchison Whampoa Ltd., a company controlled by Mr. Li's father, Li Ka-shing, for US$103 million without needing shareholder approval. The deal sparked a brief rally in PCCW's battered share price and rekindled hopes that the senior Mr. Li would engineer some deals to help his son's firm, which has seen its share price fall by more than 90% from last year's peak. Yet shareholders weren't informed of the company's unique regulatory status until March 30 after the two legislators wrote the SFC after reading media reports of the waiver. The SFC said the decision by the exchange to waive key sections of the listing rules and draw up new ones specifically for PCCW was "arrived at on a reasonable basis" and that "we have found no evidence of unequal treatment of listed issuers." Over the weekend, one of the legislators who first raised the issue, Albert Ho of the Democratic Party, said he remained deeply dissatisfied at the SFC's statement, which he said failed to address the issue of why PCCW shareholders were kept in the dark. He said the waiver "should have been based on clear criteria to make sure that other companies in that situation receive the same treatment". PCCW had negative net assets of US$1.8 billion as of Dec. 31, the last date of its financial year, after it wrote off all the goodwill of its HKT takeover in one swoop and wrote off US$667 million on sour Internet investments. Company officials say that following a series of joint-venture deals with Telstra Corp. of Australia, its deficit will be about half of its current level and its net deficit will be around US$925 million. Joan Wagner, a PCCW spokeswoman, said, "The company has complied with the rules set by the Stock Exchange and the SFC and we have not received special treatment from either." She added that negative assets "may be new to Hong Kong, but there are many precedents with stock exchanges in other markets, which have had to deal with major mergers." Meanwhile, PCCW on Friday said its listed Singapore parent, Pacific Century Regional Developments Ltd., has won an appeal against a September judgment that could have forced the parent to pay nearly US$40 million to the Singapore subsidiary of a Canadian investment company. PCCW said Singapore's Court of Appeal had overturned a High Court judgment on a claim made by Canadian Imperial Investment Pte. Ltd. Canadian Imperial's parent, Vancouver-based CML Global Capital Ltd., announced the appeals-court ruling in a news release over the weekend. The High Court had ruled that PCRD, also controlled by Richard Li, breached a shareholders agreement it signed in 1997 with Canadian Imperial. The lower-court ruling ordered damages based on PCCW's share price at the time of the judgment; that figure could have reached nearly US$40 million. The original lawsuit against PCRD involved ownership of a joint venture to build an underground-parking garage in Shanghai. PCCW's statement quoted PCRD's chief financial officer, Peter Allen, as saying his company is a "delighted" with the outcome. Write to Gren Manuel at gren.manuel@wsj.com1 -------------------------------------------------------------------------------- URL for this Article: interactive.wsj.com Hyperlinks in this Article: (1) mailto:gren.manuel@wsj.com -------------------------------------------------------------------------------- Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved. Printing, distribution, and use of this material is governed by your Subscription Agreement and copyright laws. For information about subscribing, go to wsj.com Used with permission of wsj.com