Translated by Andrew Vanburen from 電訊盈科: 分手快樂? by Guni Wudao
TELECOM GIANT PCCW Ltd (HK: 8) is the breakup story that keeps generating breaking news stories.
As most of us know, tycoon Chairman Richard Li’s PCCW hit a major roadblock in its privatization plan three years ago, with a Hong Kong court blocking the conglomerate’s 2.2 bln usd scheme.
But what has happened since to the Hong Kong listco and what can we learn from it?
It is fair at this point to first ask a basic question: Why should we care?
Simply put, the scale of the Hong Kong-based firm is gargantuan, with a strong presence in fixed line, broadband Internet, IPTV, mobile, IT solutions, data centers, integrated global communications, infrastructure, advertising and interactive services.
The group operates nearly 2.6 mln commercial and residential lines, and its IPTV service reaches 40% of the 2.3 mln households in Hong Kong.
It has over 8,000 PCCW Wi-Fi hotspots in the Special Administrative Region (SAR) with enough underground optical fibres in Hong Kong alone to circle the globe 33 times.
Hong Kong Telecom Trust (HKTT; HK: 6823), a late-2011 spin-off telecom asset from the original core of PCCW Ltd, has quickly established itself as the top leading integrated provider of fixed-line phone networks, IDD calling, data and retail broadband, mobile and wireless (2G, 3G., CDMA and Wi-Fi systems) telecom services in Hong Kong.
The spinoff was originally picked up by PCCW Ltd (longform: Pacific Century CyberWorks Ltd) in 2000.
Following HKTT’s spinoff, it went ahead with a fundraising plan, targeting up to 10.7 bln hkd via the issuance of a maximum of 2.36 bln share stapled units (SSU) within an IPO, aiming to become the maiden fixed single investment trust IPO listing in the SAR.
Listing via the business trust platform affords HKTT the luxury of not having to pay dividends based on annual operating cash flow while also not having to cede control of HKT Ltd and disallow HKTT to accumulate debt, via the flotation of SSU.
Complex enough for you? After all, this is the deal that prompted a Hong Kong court to take the somewhat unusual step back in 2009 of stepping in to stop things in their tracks.
Wait, it gets better.
Each SSU is comprised of a single unit of HKTT, a preference share in HKT Ltd (which is in turn stapled to the unit), and what is attractively termed a “beneficial interest” in ordinary shares of HKT Ltd.
Apparently China International Capital Corporation Ltd (CICC), Goldman Sachs and Deutsche Bank have no trouble wrapping their minds around it all because they signed on as joint global sponsors of the IPO, with no word on cornerstone investor participation so far.
And to further complicate matters is PCCW Ltd’s figurative finger being pushed further into the property pie.
Real estate play Pacific Century Premium Developments Ltd (HK: 432) made public around the same time that HKTT was spinning off from PCCW Ltd that 23% stakeholder Elliott Capital requested a sale of PCPD assets, with the sole purpose of tempting the aforementioned Tycoon Li of PCCW fame to repurchase the stock, with the PCCW Ltd chairman currently being the biggest shareholder of PCPD.
I think this ongoing mega-deal exemplifies better than any other current newsmaking corporate restructuring the absolute necessity of fully doing one’s homework before throwing one's investor hat into this shifting ring.
Caveat emptor (buyer beware) is an overused, sometimes hackneyed phrase that often risks losing its meaning through overexposure.
However, it has been around since the Roman Empire so it has withstood the test of time, mainly because it still holds true.
And it should be one of the driving mentalities for investors these days.
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電訊盈科 (008) 的動作一浪接一浪。繼於上年年尾完成分拆香港電訊信託(6823)之後，目前尚等待向電盈小股東作兩輪實物分派之際，電盈旗下的地產旗艦公司盈科大衍(432)，亦在兩周前宣告將股份買賣暫停，待落實股本重組計劃。