HKT Trust's global I.P.O. launch today
The global initial public offering of HKT Trust, the telecommunications business being spun off by PCCW, starts today, with expectations of strong demand despite the volatile market.
'We're not flying in the dark,' PCCW group managing director Alex Arena said about the timing of Hong Kong's first business trust offering. 'Not all IPOs are the same. A bad market for some IPOs can be a better market for others.'
Net proceeds from the offering are expected to be HK$9.64 billion, based on the mid-point of the HK$4.53 to HK$5.38 price range per unit of the business trust.
CICC, Deutsche Bank and Goldman Sachs are the joint sponsors, joint global co-ordinators, joint bookrunners and joint lead managers of the global offering.
Macquarie Securities analyst Lisa Soh last week said the HKT Trust stock valuation 'looks expensive' based on its estimated price-earnings ratio of 21.3 to 25.3 times. Its yield, or dividend, is projected to be from 7.4 per cent to 8.8 per cent.
'Compare that to SmarTone on a 7 per cent yield on 14 times earnings,' Soh said, adding that the largest asset on the business trust's balance sheet was goodwill.
Arena said other analysts had valued the business trust more highly. 'This is a growth business, a business that is highly competitive, has major market share in every sector. You can't find a telco like this overseas,' he said. 'Therefore we should be valued more highly on traditional metrics than our competitors.'
Arena said that more than a decade since Hong Kong's telecommunications sector was opened to competition, HKT had remained the city's leading integrated provider of fixed-line, mobile and broadband telecommunications services. It had 61.2 per cent market share by number of exchange lines, 12.1 per cent market share by number of mobile subscribers and 65.4 per cent market share by number of broadband access lines as of June 30, according to government data.
Arena also said the valuation of the company should not simply be viewed on a price-earnings basis.
'One of the things that hold back earnings is depreciation,' he said. 'When you've invested as much as we have, then earnings will look smaller than they are because there are deep depreciation numbers coming through. That's accounting.
'Look at cash flow: on cash-flow basis this business is going to pay a very high yield. So the right numbers speak for themselves. If you look at the wrong numbers and draw the wrong conclusion, you're going to make the wrong investment.'
HKT generated stable earnings before interest, tax, depreciation and amortisation (ebitda - a measure of a company's operating profitability) in 2008, 2009 and 2010 of HK$7.36 billion, HK$7.26 billion and HK$7.25 billion respectively.
On goodwill as a major asset of the offering, PCCW chief financial officer Susanna Hui Hon-hing said: 'In all fairness, HKT deserves a very big [consideration for] goodwill because this is a household name that has been here for more than 85 years.'
HKT has laid enough optical fibres in HK to circle the planet this many times, making broadband available to 77% of households