Hutchison Whampoa

Hutchison Telecom shares plunge 7.14pc

PUBLISHED : Saturday, 24 February, 2007, 12:00am
UPDATED : Saturday, 24 February, 2007, 12:00am

Special dividend from Indian asset sale disappoints investors

Shares of Hutchison Telecommunications International Ltd fell as much as 8.6 per cent yesterday as institutional investors showed their disappointment at a lower than expected special dividend payout from the sale of its Indian mobile unit.

The stock finished 7.14 per cent down at HK$16.38, with turnover of HK$721 million.

Hutchison Telecom, the emerging markets telecommunications unit of conglomerate Hutchison Whampoa, proposed to distribute HK$6.75 as special dividend for shareholders after it agreed to sell its 67 per cent stake in Hutchison Essar to British mobile operator Vodafone for a total of HK$85.9 billion.

'I expect [HTIL] will declare as much as HK$9 a share as special dividend given its relatively high valuation in the sale,' said a fund manager who has held the stock since its trading debut in 2004.

He said it would not be easy to replace the Indian mobile asset with other new or existing investments, even though the management had indicated the firm had set aside US$5 billion for further acquisitions in the next 12 to 24 months.

'The quantum of special dividends was lower than our expectation,' UBS said in a report yesterday. 'This is below our expectation of 70 per cent of proceeds being paid out as special dividends.'

The dividend payout will be subject to the completion of the sale. An extraordinary general meeting of shareholders to approve the deal is scheduled for March 9.

After selling the stake in Hutchison Essar, India's No4 mobile operator, Hutchison Telecom will have operations in eight markets including Hong Kong and two high-growth economies - Indonesia and Vietnam.

The company began services in Vietnam last month and is scheduled to launch operations in Indonesia next month.

An analyst who attended a meeting on Wednesday said Hutchison Telecom management said that about US$1.1 billion would be spent in Indonesia, Vietnam and Sri Lanka over the next two years.

Apart from spending the proceeds on special dividends and new investments, Hutchison Telecom would use US$1.8 billion for debt repayment, of which US$1.1 billion would be slated for reducing debt at its mobile business in Thailand, Citigroup said in a report.

The bank maintained its 'sell' rating on Hutchison Telecom after the asset sale.

Hutchison Telecom plans to announce a new dividend policy during its interim results in August and said it would revisit that policy by the end of next year if the company was unsuccessful in matching up new investment opportunities.

The company will be in a net cash position of HK$65.3 billion after the sale, from a current net debt of HK$35.8 billion.

Hutchison Whampoa will receive a special dividend of US$2 billion from Hutchison Telecom and report a one-off gain of as much as HK$35 billion on the Indian stake disposal, said investment bank Goldman Sachs, which is acting as a financial adviser to Hutchison Telecom in the asset sale transaction.

'The dividend could help [Hutchison Whampoa] lower its gearing to 43 per cent from 51 per cent,' Goldman Sachs said.

Net profit for last year could rise 45 per cent to HK$20.4 billion given the significant exceptional gain and improving operating environment for Hutchison's worldwide 3G business.