PCCW's wholly-owned fixed-line telecom arm, PCCW-HKT Telephone, is planning to raise US$500 million from the sale of 10-year bonds, according to notices sent by the three major rating agencies.
The bonds, which will be guaranteed by PCCW, were being marketed to investors yesterday at a yield spread of 120 to 125 basis points above the 10-year US Treasury, market sources said. As no roadshow was needed, the pricing was expected to be finalised by today, they added.
HSBC, the sole arranger of the bonds, declined to comment.
The price guidance suggests the new 2015 bond will be priced slightly more generously than the company's outstanding bonds maturing in 2013, which yesterday were quoted at about 105 basis points over Treasury and 69 basis points over US dollar Libor, according to one market participant.
The pricing on the new bonds corresponds to the spread over US Libor in the mid-1970s.
The bond offer comes as Fitch Ratings yesterday revised down its outlook on PCCW-HKT's BBB-plus rating to negative from stable, following a 'weaker than anticipated operating performance over the past two years on account of the harsh regulatory regime and sustained acute competition in the Hong Kong telecom market'.
Fitch said PCCW had reduced its net debt to about US$2.3 billion from US$3.4 billion at the end of last year, thanks to income from the sale of PCCW Tower and the disposal of a 20 per cent equity stake to China Netcom Group.
The company has US$1.1 billion worth of convertible bonds that will mature in December this year at 120 per cent of face value. But proceeds from the new bond issue - together with residual cash and the prospective free cash flow in the second half, as well as $11 billion in undrawn bank credit lines - puts PCCW in a solid position to meet these obligations, Moody's said.
PCCW has also agreed to provide the necessary financing to Sunday Communications so that it can prepay total outstanding borrowings of $799.24 million to Huawei Technology by July 29.