PCCW Said to Win Approval for First Hong Kong Business Trust
September 08, 2011, 9:55 PM EDTBy Fox Hu and Mark Lee
Sept. 9 (Bloomberg) -- PCCW Ltd. received approval from Hong Kong’s stock exchange to list its telecommunications assets as the city’s first publicly traded business trust, a person with knowledge of the matter said.
PCCW, led by Chairman Richard Li, plans to raise as much as $2 billion from the sale in late October, people with knowledge of the matter said last month. Assets of the trust include fixed-line, broadband Internet and mobile-phone services, PCCW, Hong Kong’s biggest phone carrier, said in June.
Hong Kong moved to allow business trusts, a structure that allows investors to receive dividends from operating cash flow, after Hutchison Whampoa Ltd. picked Singapore for the $5.5 billion initial public offering of a trust backed by its port assets. Spinning off its telecom assets as a business trust will allow PCCW to raise money for investing in faster-growing areas like pay-television.
“The markets have been quite volatile and people are interested in investment products with steady income,” said Vivian Lam, a Hong Kong-based partner at Paul Hastings LLP who worked on the listing of Perennial China Retail Trust in Singapore earlier this year. “It’s the flavor of the month.”
The Wall Street Journal and the Financial Times reported the approval earlier, citing people they didn’t identify. PCCW said late yesterday in a statement that the listing application was “reviewed” by the stock exchange, without saying whether it had received approval.
Investor Protection
The PCCW trust aims to start trading on Oct. 21, people familiar with the deal have said. After the spinoff, PCCW will retain operations including divisions that offer pay-television and computer services, it said in June. Anita Choi, a spokeswoman at PCCW in Hong Kong, and Hong Kong Exchanges & Clearing Ltd. spokesman Scott Sapp declined to comment on whether the listing was approved.
Hong Kong Exchanges said in March it may amend rules to allow listings of business trusts. A business trust holds assets that produce recurrent income and pays dividends out of operating cash flows rather than profits.
The Chinese territory does allow listings of real estate investment trusts. Market regulators were studying how to protect investors in business trusts, Hong Kong’s Secretary for Financial Services and the Treasury, K.C. Chan, told the city’s legislature in June.
“We consider it essential for investor protection that listed business trusts are subject to the relevant SFO provisions,” Chan said, referring to Hong Kong’s insider trading, disclosure of interest and other market misconduct laws. “The approach being considered is to ensure that the regulatory regime for a listed business trust mirrors that of a listed company.”
‘Stapled’ Securities
China International Capital Corp., Deutsche Bank AG, Goldman Sachs Group Inc. and JPMorgan Chase & Co. are managing the PCCW trust offering, people with knowledge of the matter have said. Proceeds from the sale will be used to reduce debt and for investment in faster-growing businesses, PCCW said on June 2.
The proposed structure would have each unit of the trust linked to a specific share in HKT Ltd., the holding company for the telecommunications assets, according to yesterday’s exchange filing. Each trust unit will be “stapled” to a preferred share in HKT, PCCW said. The units and preferred shares will trade at a single price and can’t be unbundled, it said.
PCCW will own at least 55 percent of the trust company and 100 percent of the trustee-manager for the trust, which will pay out all cash received from HKT, according to the filing. As the trust won’t be a legal entity, the trustee-manager will hold its assets.
Buyout Rejected
Hutchison Whampoa, controlled by Li’s father Li Ka-shing, sold units in Hutchison Port Holdings Trust in March, raising $5.5 billion in Singapore’s biggest IPO. At the time, Hutchison Whampoa said it picked Singapore because Hong Kong didn’t allow listings of business trusts.
In 2009, Hong Kong’s Securities and Futures Commission won a court ruling to block Li’s HK$15.9 billion ($2 billion) buyout of PCCW, after the regulator alleged that some insurance agents were given free PCCW shares to boost support for the takeover.
Some investors split up their holdings of PCCW shares into smaller tranches and distributed them to others, making more people eligible to vote in favor of the transaction at a shareholders meeting, the SFC alleged.
--With assistance from Debra Mao in Hong Kong. Editors: Philip Lagerkranser, Mohammed Hadi
To contact the reporters on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
