PCCW spin-off could earn HK$35b

PUBLISHED : Saturday, 10 September, 2011, 12:00am
UPDATED : Saturday, 10 September, 2011, 12:00am

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PCCW's move to spin off of its telecommunications operations as a business trust could generate up to HK$35 billion in the fourth quarter, according to one analyst's estimate.

The telecoms and media giant, controlled by chairman and chief executive Richard Li Tzar-kai, announced late on Thursday that its application for a separate listing has been reviewed by the Hong Kong stock exchange even as a Thomson Reuters publication, International Financing Review, reported that the application had already been approved.

The deal would be subject to final approval by PCCW's minority shareholders.

The concept is a new to Hong Kong, but the method of initial public offering has already been used in Singapore. PCCW believes that a separate listing of its telecom business will unlock value for shareholders.

A business trust combines elements of a company with elements of a unit trust. It lacks a separate legal identity and is controlled by a trustee manager, typically an affiliate of the company setting up the trust. Investors also hold units rather than shares and their liability is limited to the amount they paid for those units.

Macquarie Securities analyst Lisa Soh calculated the business trust's valuation at HK$3.40 to HK$4.80 a share, or a total of HK$25 billion to HK$35 billion, 'if we apply the yields of real estate investment trusts (reits) on PCCW's estimated fiscal 2012 distribution of 24 cents a share'.

'REITs trade on yields of between 5 per cent and 7 per cent,' said Soh, who has put an 'outperform' recommendation on PCCW stock. REITs are currently the only listed trusts recognised in Hong Kong.

PCCW's proposed listing structure showed that will retain no less than 55 per cent ownership in the business trust entity, called the HKT Trust and serve as its trustee-manager. Investors will receive so-called shared stapled units of the HKT Trust and HKT Limited, the holding company of the telecoms 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 Australian Centre for Financial Studies.

The proceeds from the business trust listing will be used by PCCW to repay some of the existing loans of its telecommunications group, which would cut its annual interest expense. The HKT Trust will not be permitted to incur debt.

PCCW shares fell 0.28 per cent yesterday to close at HK$3.50.