PCCW spin-off plan backed by shareholders

PUBLISHED : Thursday, 13 October, 2011, 12:00am
UPDATED : Thursday, 13 October, 2011, 12:00am


PCCW shareholders yesterday approved the company's plan 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 in a filing with the Hong Kong stock exchange that its proposed spin-off was passed by shareholders who represented 99.97 per cent of the company's issued shares.

This result marked a big victory for Li after several highly publicised attempts to privatise the company failed.

Macquarie Securities analyst Lisa Soh said the vote was in line with market expectations.

PCCW required 50 per cent shareholder approval to proceed with the plan. Li and China Unicom, the mainland's second-largest telecommunications carrier, already control 27.4 per cent and 18.48 per cent, respectively.

A business trust combines elements of a company with aspects 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, where property trusts are recognised. But this form of initial public offering is already supported in Singapore. PCCW believes that a separate listing of the telecommunications business will unlock value for shareholders. A business trust is allowed to pay dividends from its operating cash flow.

PCCW's share price fell 0.34 per cent to close at HK$2.89 yesterday, giving the company a market capitalisation of HK$21.02 billion. Its shareholders' approval of the proposed business trust listing was announced after the market closed.

The listing is expected to generate between HK$6.8 billion and HK$10 billion, which will be used to repay some of the existing loans of PCCW's telecommunications group.

PCCW's proposed listing structure shows it 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 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 Australian Centre for Financial Studies.

Li yesterday said PCCW would proceed with the spin-off if the HKT Trust achieved a minimum market capitalisation of HK$28.6 billion.

Macquarie's Soh said such a minimum market cap represented the biggest hurdle to proceeding with the business trust listing.

'Based on our numbers, HKT Trust has to be priced from HK$3.9 to HK$4.9 per share at the global offering to reach that market cap,' she said.

Road to Trust

July 25, 2006

After no firm proposals could be reached, PCCW terminates separate discussions to sell all of its core telecommunications and media-related assets to Australia's Macquarie Group and US buyout group TPG/Newbridge.

November 30

Minority shareholders of the Richard Li-controlled Pacific Century Regional Developments, the largest shareholder of PCCW, spurn former investment banker Francis Leung Pak-to's HK$9.16 billion offer to buy 22.66 per cent of its stake in the carrier.

October 12, 2008

Hit by the market downturn, PCCW abandons the proposed sale of a 45 per cent stake in HKT Group Holdings, a newly incorporated subsidiary under which the company's core telecommunications services, media and information-technology solutions businesses are proposed to be reorganised and consolidated.

April 22, 2009

Unanimous ruling by the Court of Appeal blocks PCCW's HK$15.93 billion privatisation deal.

March 21, 2011

PCCW reveals it is 'in the preliminary stages of exploring the feasibility of a spin-off' and is in discussions with the authorities over regulatory issues involved in listing its telecommunications operations as a business trust.

September 8

The separate listing of PCCW's telecommunications business is reportedly approved by regulators, as a circular is being prepared to be sent to shareholders.

October 12

Shareholders approve the proposed spin-off and separate listing of PCCW's telecommunications operations as a business trust, as well as its option and share stapled unit award schemes.