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

To: ms.smartest.person who wrote (1580)	7/10/2001 10:51:43 AM
From: ms.smartest.person	Read Replies (1) \| Respond to of 2248

A Humbled CyberWorks Pushes Giant Bond Issue Debt Offering of at Least $2.5 Billion Will Raise Parent's Financing Costs By PHILLIP DAY and GREN MANUEL Staff Reporters of THE WALL STREET JOURNAL PCCW-HKT Telephone Ltd. kicked off a roadshow for a massive new bond issue that looks sure to set records for its parent, Pacific Century CyberWorks Ltd. Such records, however, aren't necessarily something that should make PCCW proud, because the new financing suggests how hard times have become for the Hong Kong company. With at least US$2.5 billion of bonds for sale, the company's telephone subsidiary will likely set a record for an Asian corporate-bond issue outside of Japan. At the same time, PCCW-HKT will probably be forced to pay the highest yield of any Asian investment-grade issuer this year, tough medicine for a company that at one time was able to secure below-market bank financing for its expansion. "PCCW was the darling of Hong Kong, the top of the top, and now they realize that today they are far from it," said Carson Cole of DebtTraders in Hong Kong. Analysts generally agree that it makes sense for PCCW-HKT to tap the bond market now, given current low interest rates and the company's need to extend the repayment of the debt incurred in the takeover of Cable and Wireless HKT last year. The move will be costly, however, both in terms of the bond itself and in what it does to the company's overall financing. Carl Wong, a fixed-income analyst at Bank of America in Hong Kong, estimates the bond sale will add 1.8 percentage points to PCCW's current 5.28% annual financing costs if the bond is priced at the low end of expectations. If the company has to pay more to get investors interested in the bond, PCCW may add as much as 2.2 percentage points to its annual financing costs. Bond-market analysts predict the bond will have to pay investors a yield of at least 2.6 percentage points more than U.S. Treasury paper of comparable maturity, and perhaps as much as three percentage points more, in order to sell successfully. PCCW has seen its share price tumble to 2.35 Hong Kong dollars (30 U.S. cents) at Monday's close from its high of HK$28.50 in February last year. It hasn't been alone, though. The Dow Jones index of global telecom leaders is down more than 15% since the start of the year. The general gloom about telecom companies may give some investors pause, Mr. Cole said, adding that the size of the issue may also add to the premium PCCW will have to pay to sell the bonds. Last week, Deutsche Telecom AG issued eight billion euros ($6.77 billion) in new bonds, while France Telecom SA came to market with an issue of 190 billion yen ($1.51 billion), cutting into whatever appetite remains for telecom debt. But Mr. Cole points out that PCCW needs to do the deal now to extend the maturity on its debt while interest rates are low. "I suspect they will pay up to whatever investors demand," he said. PCCW has US$3.8 billion in medium-term debt, a company official told potential investors at the roadshow in Hong Kong on Monday, leading some to speculate that the US$2.5 billion figure may be just a starting point for the size of the new bond issue. At the end of last year, PCCW had about US$5 billion in debt, with US$4.7 billion of that being bank loans it took out to pay for the purchase of Cable and Wireless HKT. Those loans were secured at rates significantly below what other telecom companies were paying, at a time when Hong Kong bankers felt they needed to establish good relationships with PCCW. Of that $4.7 billion, $1.5 billion is due in 2003, $2.3 billion is due in 2005 and $900 million is due in 2007. Even with low interest rates on that debt, PCCW needs to start thinking now about how it will pay the money back. The new bond will likely be sold in two tranches, one maturing in 10 years and the other in 30 years. Benjamin Tam, an analyst covering PCCW for Dao Heng Securities Ltd., said extending the maturity of its debt is a positive for PCCW, "but I don't think it will move the share price." He said stock investors will likely take note of the increased financing costs that PCCW will have to pay with the bond. A banker close to the deal said the bond issue will likely be priced July 19. Write to Phillip Day at phillip.day@awsj.com2 and Gren Manuel at gren.manuel@awsj.com3. -------------------------------------------------------------------------------- URL for this Article: interactive.wsj.com Hyperlinks in this Article: (1) interactive.wsj.com (2) mailto:phillip.day@awsj.com (3) mailto:gren.manuel@awsj.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