PCCW Ltd., Hong Kong’s biggest phone company, said it may raise more than HK$10 billion ($1.3 billion) from the proposed listing of its telecommunications business trust to repay debt and fund investments.
PCCW may sell 36.7 percent of the units in HKT Trust in an initial public offering to raise the money, and the total may be boosted by HK$1.6 billion if the over-allotment option is exercised, it said in a statement yesterday. The planned spinoff is “subject to market conditions,” PCCW said.
Billionaire Chairman Richard Li expects to lure investors to Hong Kong’s first business trust by offering to pay out a higher proportion of the income from PCCW’s businesses including fixed-line and broadband Internet. PCCW’s announcement comes amid a rout in global stock markets that has prompted companies including Sany Heavy Industry Co. to delay share sales.
“Given the state of the markets, there is a risk that the listing may not go ahead as planned,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong. “A lot of investors have factored in a successful spinoff into PCCW’s share price.”
PCCW fell 6 percent, the biggest drop since Aug. 5, to close at HK$3.08 in Hong Kong. The stock has declined 10 percent this year, compared with the 24 percent drop for the city’s benchmark Hang Seng Index.
The trust listing will only proceed if the pricing of the offer is in the interests of PCCW, the company said. Anita Choi, a spokeswoman at the carrier, declined to elaborate.
PCCW’s fund-raising target is lower than an estimate by Macquarie Group Ltd. in June, when the investment bank said that the proposed trust listing may raise as much as HK$13.5 billion.
PCCW, which aims to complete the spinoff next quarter, estimates its telecommunications trust will have a minimum market capitalization of HK$28.6 billion, according to the statement. The trust will be able to distribute a minimum of HK$2.57 billion to investors next year, higher than the at least HK$1.36 billion it is forecast to make in profit, it said.
A trust will be able to pay out a larger proportion of its income as dividends than a company structure, Li said in May.
PCCW, which posted a profit of HK$1.93 billion in 2010, paid HK$1.27 billion in dividends to shareholders last year, according to its annual report.
The company will hold a shareholders’ meeting on Oct. 12 to ratify the trust spinoff plan, it said.
Hong Kong moved to permit 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.
PCCW will place its assets including divisions that operate fixed-line, broadband Internet and mobile-phone services in the business trust, it said. After the spinoff, PCCW will retain operations including pay-television and computer services.
PCCW will use HK$7.8 billion of the proceeds from the trust spinoff to repay debt, while the remainder may be re-invested, it said. The company will retain at least 55 percent ownership of the business trust after the spinoff, it said.