Billionaire Richard Li may seek to spin off PCCW Ltd.’s telecommunications assets, at least his sixth attempt to reorganize Hong Kong’s biggest phone company after it underperformed rivals.
PCCW rose 4.6 percent to HK$3.43 at the 4 p.m. close of trading in Hong Kong, giving the stock its biggest two-day gain since January 2010. The company said it’s in talks with regulators in Hong Kong to list the assets separately as a business trust.
Li’s plan follows a failed attempt to take PCCW private in 2009, when a Hong Kong court ruled that a shareholder vote was manipulated. PCCW, with businesses including property development and television, fell 4.7 percent in Hong Kong trading this year to last week’s close while shares of SmarTone Telecommunications Holdings Ltd. jumped 77 percent and Hutchison Telecommunications Hong Kong Holdings Ltd. gained 11 percent.
“The capital that’ll be raised from the spinoff will help them develop new businesses,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “Borrowing costs are now rising, so it may be a good moment for the company to reduce its debt.”
Telecommunications businesses, including fixed-line, Internet, mobile-phone, pay-television and computing services, accounted for more than 90 percent of PCCW’s first-half revenue of HK$11.8 billion ($1.5 billion), with the rest coming from property. Spokeswoman Anita Choi declined to comment on which of the company’s assets will be included in the proposed spinoff.
Li Ka-shing, Hong Kong’s richest man and the PCCW chairman’s father, spun off some container-terminal operations from Hutchison Whampoa Ltd. earlier this month. The newly-formed investment trust, Hutchison Port Holdings Trust, fell 5.9 percent on its first day of trading in Singapore on March 18.
PCCW has lost more than 90 percent of its value since the younger Li in 2000 used his Internet start-up Pacific Century Cyberworks Ltd. to take over Cable & Wireless HKT, the former phone monopoly in Hong Kong, to create a company valued at about $41 billion in the biggest merger between two Asian firms at the time. PCCW has a market value of HK$24.9 billion.
Li, 44, was unable to sell his controlling holding in PCCW to former Citigroup Inc. banker Francis Leung in 2006 after failing to secure minority shareholder approval. That followed unsuccessful bids to sell PCCW’s main telecommunications assets to TPG Inc. and Macquarie Group Ltd. in the same year.
In October 2008, PCCW scrapped the proposed sale of as much as 45 percent of its HKT Group Holdings Ltd. unit, owner of the company’s main telecommunications and pay-television businesses, citing a lack of attractive offers during the global financial crisis.
In April 2009, Court of Appeal Judges including Anthony Rogers blocked Li’s $2.1 billion buyout bid for PCCW, after the Securities and Futures Commission alleged that hundreds of people were given shares in the phone carrier to boost support for the transaction.
Hong Kong police searched the offices of at least one of Li’s companies in February 2010, in addition to the premises of Fortis Insurance Co. (Asia), an insurer formerly controlled by the billionaire, two people familiar with the matter said at the time. Police had search warrants for Li’s residences in its investigation of the buyout bid, according to the two people.
Martin Rogers, a lawyer for Li at Clifford Chance LLP in Hong Kong, said in February 2010 that the executive would “cooperate fully” with any probe. No senior management at PCCW and Li’s Pacific Century Regional Developments Ltd. has committed any wrongdoing, Rogers said at the time.