PCCW to appeal after spin-off listing blocked
PCCW chairman Richard Li Tzar-kai is gearing up for another battle with regulators after the proposed spin-off listing of the firm's telecommunications operations was rejected.
In a filing yesterday, PCCW said the listing committee of the Hong Kong stock exchange had turned down the planned separate listing based on Practice Note 15 of the Listing Rules.
PCCW, Hong Kong's biggest fixed-line telecommunications network operator, said it would appeal since 'the reasons given for that decision are not justified'. Its proposed spin-off would be the first initial public offering of a business trust in Hong Kong, a form of listing that Singapore already supports.
'We believe we have strong grounds to appeal and therefore, we are exercising that right,' a PCCW spokeswoman said. 'We don't wish to go into details while we are going through the formal appeal process.'
A spokesman for the exchange said it did not comment on individual listing applications. Practice Note 15 of the Listing Rules, which took effect in May 1997 and was last revised in January 2009, sets out guiding principles that the stock exchange applies when it considers spin-off applications for approval. 'I think the main reason for the rejection of PCCW's application is that [the process of setting up] the law for business trusts in Hong Kong is not yet ready,' said Louis Wong Wai-kit, director of Philip Capital Management.
A change of rules would be necessary to support the carrier's spin-off plan since Hong Kong at present allows only property trust listings.
A business trust combines elements of a company with elements of a unit trust. It does not have a separate legal identity and is controlled by a so-called trustee manager, typically an affiliate of the company establishing the trust. Investors also hold units rather than shares, and their liability is limited to the amount they paid for those units.
PCCW group managing director Alexander Arena last month described a business trust as 'just another way of potentially unlocking value for shareholders'.
Wong, however, pointed out that PCCW 'may be under closer scrutiny by the regulators' after its unsuccessful privatisation bid.
Li failed to take PCCW private in 2009, after the Court of Appeal ruled in favour of the Securities and Futures Commission's objection to the HK$15.93 billion buyout deal.
The court said the shareholder vote that approved the buyout was 'clearly manipulated' and unfair to small investors.
Lisa Soh, an analyst at Macquarie Securities in Hong Kong, said PCCW still had the option to explore the spin-off listing of its telecommunications assets as a business trust in Singapore. PCCW, whose shares fell 2.18 per cent to close at HK$3.14 yesterday, has said the 'preferred option would be to list in Hong Kong'. It said the spin-off application was based on 'working within the existing Hong Kong regulatory framework'.