You're Breaking Up... PCCW wants to spin off its telecom business into a separate listing.  Photo: PCCW

Translated by Andrew Vanburen from: 電訊盈科: 分手難做嗎? (中文翻譯,請看下麵)

PCCW LTD (HK: 8) has seen its shares now rise to over 3.3 hkd from just 2.7 in less than a month thanks to a spinoff plan and a share buyback by its tycoon Chairman Richard Li, who purchased 2.9 mln shares last week at 3.00 hkd each.

The move is a masterful plan to help reduce friction between shareholders and management of Hong Kong’s top telecom firm.

PCCW provides telecommunications, Internet access, multimedia services and related equipment to Hong Kong’s seven mln citizens, while also investing and developing system integration and technology-related business, infrastructure and properties in Hong Kong and China.

Therefore, a company with such influence, 20,000 employees and a market cap of over 24 bln hkd obviously makes headlines when its high-profile chairman buys back shares, or when management announces plans to spin off and seek a separate listing for its telecom assets via a business trust.

PCCW provides telecom, Internet access, multimedia services and related equipment to Hong Kong’s seven mln citizens. Photo: HKTA

If successful, the move will be the first of its kind for a telecom listco in Hong Kong, resulting in stapled securities, and should help free up both capital and interest in the pared of unit as a pure telecom play as well as go a good distance in mending frayed relations between shareholders and company executives.

The special administrative region’s (SAR) dominant Internet service provider (ISP) and fixed-line firm won authorization from the Hong Kong bourse in early June to list its telecom assets in the form of a business trust, with the plan now requiring approval from both regulators and shareholders to be finalized.

Recent reports have PCCW eyeing some 1.2 bln hkd in proceeds from the listing, with the Hong Kong firm targeting a fourth quarter debut.

If all goes as planned, the spinoff would mark the Hong Kong bourse’s inaugural business trust listing outside of the real estate sector, with PCCW aiming to keep a 55% equity stake in the post-listing assets.

To help grease the skids under the proposed spinoff, Mr. Li pledged to maintain a “stable” dividend payout policy over the next three years, hoping this would help win approval for the deal from minority shareholders.

PCCW's 12-month share price performance

The spinoff will boost the rights of shareholders of the firm’s newly-listed dedicated telecom business stocks, affording preferential subscription rights to these investors with set-asides held exclusively for them if they wish to boost their stakes.

PCCW’s intention to keep at least a 55% equity stake in the spinoff for at least three years is meant to ensure it can make good on its promises to practice a stable dividend policy over that time period – namely, to maintain payouts at 2010 levels.

PCCW has had a very tumultuous decade, with its valuation dipping at times by 90% from periodic levels.

This has resulted in a large portion of the company’s equity being held longterm by retail investors waiting for a return to more robust share price levels.

Mr. Li said the main rationale for the spinoff was to ensure consistently stable dividends to shareholders at a high level.

PCCW now: 3.34 hkd

However, many shareholders would more likely be happier to see management work on ensuring healthy earnings as well as working to streamline operations and boost the company’s fundamentals.

Relations between minority shareholders and management first soured when PCCW listed its property unit – Pacific Century Premium Developments Ltd (PCPD) – severely diluting shareholder value at the time.

It will be interesting to monitor the progress of PCCW’s spinoff plan this year, and see how cooperative (or cantankerous) shareholder meetings are going forward.

If all goes well, and the company works on its growth strategy into the mix, I think the valuation doldrums for this counter may soon be a thing of the past.


See also:

DMX: Telco Sector Demand Spurred By Technology Replacement

SINOTEL'S PEER IN PRC: GrenTech 2010 Net Triples On WLAN, 3G

電訊盈科: 分手難做嗎?
(文: 古你唔到)

最近電訊盈科(008)提出分拆電訊業務,若然落實,將會以實物形式,分派由商業信託及相關連的電訊控股公司組合而成的合訂股份(stapled securities)。此舉不單在香港股票市場內創下先河,成為香港首間商業信託股,亦為長期受壓的電盈股價,得到增值的空間,間接減少管理層與股東之間的磨擦。







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