Bloomberg News

PCCW’s HKT Trust Will Generate Stable Returns, Arena Says

November 29, 2011

(Updates with closing share price in fifth paragraph.)

Nov. 29 (Bloomberg) -- PCCW Ltd.’s telecommunications business trust forecast stable investment returns after concerns that dividend payouts may be unsustainable damped demand for the unit’s initial public offering.

“The business throws off a lot of cash,” Alex Arena, executive director at HKT Trust and HKT Ltd., said in a Bloomberg Television interview in Hong Kong today. PCCW, the city’s biggest phone carrier, raised HK$9.3 billion ($1.2 billion) this month in the separate listing of HKT Trust to help repay debt and fund investments.

PCCW’s billionaire Chairman Richard Li has said the reorganization to put assets including fixed-line and broadband Internet under the business trust will allow investors to earn a higher payout from the operations. Still, capital spending by the trust may limit its ability to sustain the level of its dividend payouts after 2012, said Lisa Soh, an analyst at Macquarie Group Ltd.

“They have got key re-financing risks in 2013, 2015 and 2016,” Soh said yesterday. HKT Trust may be unable to sustain the level of its payout to investors if capital spending continues to rise faster than earnings, she said.

HKT Trust rose 0.4 percent to close at HK$4.55 on its first day of trading in Hong Kong today. The city’s benchmark Hang Seng Index advanced 1.2 percent.

The trust trades as part of a so-called share stapled unit that comprises a telecommunications trust, a trust-management company and a separate company that owns the underlying assets. The IPO of the trust was priced at the bottom of a marketed range.

PCCW Revenue

The trust will be able to pay out a bigger proportion of its income than a conventionally structured company would, Li said in June.

Revenue for the business trust and its related companies, which control PCCW’s units including those offering fixed-line, broadband Internet and mobile-phone services, rose 3.3 percent to HK$18.53 billion last year, according to the prospectus. That represents 86 percent of PCCW’s reported 2010 revenue of HK$21.5 billion.

HKT Trust needs to refinance some of its debt in 2013, Arena said today. The trust’s past earnings offer a guide to its future results, he said.

PCCW will use proceeds from the business trust listing to repay debt and expand operations including computer services and pay-television, Li said on Oct. 12.

Li struggled to draw investors to Hong Kong’s first business trust even after offering a yield that beats most real- estate trusts listed in the city.

Bottom of Range

PCCW sold 2.05 billion units in HKT Trust at HK$4.53 apiece. HKT Trust units were originally offered at HK$4.53 to HK$5.38 each, according to its IPO prospectus. HKT Trust forecast it will distribute HK$2.57 billion in 2012, representing a dividend yield of 8.85 percent for investors who purchased the trust at the IPO, according to the prospectus.

Hong Kong residents placed orders for 12 percent of the units allocated to them.

Individual investors in Hong Kong ordered a total of 24.3 million of the HKT Trust units out of the 205.4 million reserved for them, HKT Trust said on Nov. 28. The unsubscribed units were reallocated to international investors, it said.

Companies owned by Li, who is also chairman of HKT Trust’s management company, bought 257.5 million units, according to the trust’s filing yesterday. The international portion of the offering was “moderately oversubscribed,” it said.

‘Long-Term’ Investor

Li will be a “long-term” investor in the trust, Arena said. The IPO of the trust drew fixed-income and equity mutual funds, he said, declining to name them.

Billionaire Li Ka-shing, father of the PCCW chairman, this year completed IPOs of two investment trusts, Hutchison Port Holdings Trust and Hui Xian Real Estate Investment Trust, raising more than $7 billion. Both securities now trade below their offering prices.

China International Capital Corp., Deutsche Bank AG, Goldman Sachs Group Inc. and five other banks managed the HKT Trust offering.

--With assistance from Melody Fu in Hong Kong and Dave McCombs in Tokyo. Editors: Subramaniam Sharma, Frank Longid

To contact the reporters on this story: Mark Lee in Hong Kong at; Susan Li in Hong Kong at

To contact the editor responsible for this story: Michael Tighe at

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