Bloomberg News

PCCW Wins Hong Kong Approval for Business Trust Spinoff

June 03, 2011

(Adds stock underperformed rivals in third paragraph.)

June 3 (Bloomberg) -- PCCW Ltd., Hong Kong’s biggest phone company, won approval from the city’s stock exchange to list its telecommunications operations as a business trust, sending the shares surging the most in more than two months.

Hong Kong Exchanges & Clearing Ltd. approved PCCW’s spinoff proposal after the phone carrier committed to retain its information technology business for at least three years, according to a regulatory filing yesterday. The plan, initially blocked by the exchange, still requires further regulatory approval and backing from shareholders, PCCW said in the filing.

Billionaire Chairman Richard Li is seeking the first listing of a business trust in Hong Kong to generate funds to invest in faster-growing businesses to lift earnings at PCCW after fixed-line sales fell last year. The proposed spinoff is at least the sixth attempt since 2006 to reorganize the phone company, whose shares have underperformed rivals including SmarTone Telecommunications Holdings Ltd. this year.

“The news will provide a boost to PCCW shares in the short term,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “There is still some uncertainty because of the need to get clearance from shareholders and regulators, and the company should also provide guidance on how it plans to re-invest proceeds from the spinoff.”

PCCW shares rose as much as 6.7 percent, the biggest intraday gain since March, to HK$3.17, and changed hands up 5.7 percent at the midday break in Hong Kong. The stock has declined 8.7 percent this year, compared with the 75 percent gain in SmarTone, the mobile-carrier controlled by the city’s leading real-estate company Sun Hung Kai Properties Ltd.

‘Stapled Securities’

PCCW said it’s still working with regulators on its plan for “stapled securities” that combine a share and a trust unit because the structure “is a novel concept in Hong Kong.”

Hong Kong Exchanges hopes to introduce a framework for the listing of business trusts “soon,” the regulator said today. It is resolving some “technical” issues with the Securities and Futures Commission on the framework.

Henry Law, a spokesman at the exchange, declined to comment on PCCW’s business trust plan.

‘Mature’ Businesses

The proposed business trust will include “mature” operations at PCCW including its fixed-line, broadband Internet, and mobile-phone services, the company said. After the spinoff, PCCW will retain its information technology and media businesses including its Now pay-television unit, it said.

The listing would generate funds for the company to invest in faster-growing businesses. PCCW said it will also use proceeds from the listing to reduce the telecommunications division’s debt.

PCCW said in April that the stock exchange’s listing committee had rejected the trust application, and that it planned to appeal.

The trust will have a “clearer focus” on the telecommunications business, and so will attract investors who seek stable dividend yields, generating a higher valuation, PCCW said. The company plans to maintain the same level of dividends for three years.

Hutchison Whampoa Ltd., controlled by Hong Kong’s richest man Li Ka-shing, father of the PCCW chairman, this year spun off some of its ports assets in a $5.5 billion business trust listing in Singapore, after saying Hong Kong rules didn’t allow such transactions.

PCCW named NM Rothschild & Sons Hong Kong Ltd. as adviser to an independent board committee that will make a recommendation to shareholders on the proposal. The carrier reiterated that it intends to keep a 55 percent stake in the listed trust.

--Editors: John Lear, Anand Krishnamoorthy.

To contact the reporter on this story: Joshua Fellman in New York at jfellman@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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