PCCW rises after spin-off plan wins regulatory nod
Shares of PCCW surged yesterday after it received the go-ahead from regulators to spin off its telecommunications operations as a business trust, which would be the first public listing of its kind in Hong Kong.
The telecommunications and media giant, controlled by chairman Richard Li Tzar-kai, said it was continuing to work with regulators 'to finalise a structure that would enable the business trust to operate within Hong Kong's existing regulatory framework', according to its filing yesterday with the Hong Kong stock exchange.
The stock rose 4.38 per cent to close at HK$3.10 yesterday.
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.
It is a novel concept in Hong Kong, but this form of initial public offering is already supported in Singapore. The company believes that a separate listing of the telecommunications business will unlock value for shareholders.
Following PCCW's lead, 'this kind of strategy will be considered by quite a few companies in Hong Kong', said Louis Tse Ming-kwong, a director of VC Brokerage.
PCCW said it intended 'to dispose of only a minority stake in the business trust through the listing process', with an eye on retaining a 55 per cent interest. By keeping a majority stake in the telecommunications business, PCCW will continue to consolidate the earnings of the spun-off enterprise into the financial results of the group.
The stock exchange approved the proposed spin-off under Practice Note 15 of the Listing Rules. It rejected PCCW's proposal last month based on the same regulation.
Practice Note 15, which took effect in May 1997 and was last revised in January 2009, sets out the guiding principles that the stock exchange applies when it considers spin-off applications for approval.
Following the rejection last month, PCCW said the 'material modification to its proposal' was to make a clear and specific commitment to retain its so-called solutions business within the group for at least three years.
The solutions business has become a leading technology services provider to companies in Hong Kong and the mainland.
'On this basis, the company's proposal was re-considered by the Listing Committee,' it said.
PCCW's board of directors has also proposed 'to enhance the interests of shareholders by providing qualifying shareholders with an assured entitlement to stapled securities of the business trust'.
PCCW said the structure it was discussing with regulators 'the listing of stapled securities, with each stapled security comprising a unit in a trust and a share in the holding company of the telecommunications business'.
A stapled security enables an investor to own two or more securities, which are generally related and bound together through one vehicle, according to a definition by the Melbourne Centre for Financial Studies. It is commonly used in many property trusts listed on the Australian Securities Exchange.
Pending final approval from the regulators, PCCW said it aimed 'to distribute between 5 per cent and 10 per cent of the stapled securities by way of a bonus issue in the form of a distribution in specie'.
Of the total number of stapled securities on offer in the business trust offer, PCCW intended 'to make available up to 30 per cent of such stapled securities [that is, up to 30 per cent of the offering] to qualifying shareholders on a preferential basis, ahead of institutional investors or the Hong Kong public generally'.
The company also intended 'to maintain at least the same level of dividend distribution to shareholders as in 2010 for the three years following the proposed spin-off of the business trust.
Proceeds raised from the sale of the stapled securities of the business trust would be used both to reduce the indebtedness of the telecommunications operations and for the further development of what PCCW described as its other growth businesses.
PCCW reported a 28 per cent increase in its consolidated net profit last year to HK$1.93 billion from HK$1.51 billion in 2009, on solid growth across its four core business segments - fixed-line, broadband, mobile and pay-television services.
Core revenue rose 3 per cent to HK$21.47 billion, from HK$20.86 billion.
Low contribution from PCCW's majority-owned property arm, Pacific Century Premium Developments, caused the group's consolidated revenue to drop 8 per cent to HK$22.96 billion from HK$25.08 billion.
Macquarie Securities had earlier forecast PCCW's total revenue to reach HK$23.03 billion this year and HK$23.95 billion next year.