Cashed up but nowhere to go. Hong Kong companies with bloated balance sheets and unfulfilled ambitions are a growing phenomena. Cash may be king in these dangerous times but utility investors look to be getting a raw deal. Hongkong Telecommunications and China Light & Power (CLP) reported swollen cash balances this week, but little else. Given sharply lower stock prices you might think they would be gagging to maximise shareholder value through share buy-backs. Instead, familiar rhetoric of maintaining a war chest for China deals is spouted. Hongkong Telecom has been singing the same tune since 1993. Investors kept the faith in the hope of mainland market access. With no sign of an opening that fattened balance sheet looks under-geared and under-powered. A full 10 per cent of its capital is in cash. At about $13 billion the pressure to give something back is mounting. Last year it returned about 8 per cent. Not bad, but hardly grounds for entering the mutual fund business. Ironically, the capital structure has been something of a boon in recent times. Volatile market conditions have seen high yielding, low debt firms in favour. Given such interest rate uncertainty the management argues this is no time to be doling out cash and gearing up. But what is it doing with all that money? Finance director David Prince maintains the lot is in Hong Kong dollars. Interesting, because until recently it claimed to run a mixed offshore investment portfolio fully hedged back into Hong Kong dollars. Quite why is unclear. Since most is earmarked for projects outside Hong Kong the logic seems wrongheaded. Reported government arm-twisting against local firms showing less than full confidence in the peg only complicates the picture. But what of shareholders? Many will be disconcerted that $13 billion sits un-hedged against a successful speculative attack on the Hong Kong dollar. With the Ministry of Posts and Telecommunications (MPT) showing no sign of throwing open the doors to foreign players why not, after all, make a special distribution to shareholders? Merrill Lynch argues Hongkong Telecom could buy back 10 per cent of its shares - taking its debt-equity ratio to 20 per cent - raising earnings per share growth by 1 to 2 per cent and comfortably servicing interest payments. In the past the company has hinted at a share repurchase programme rather than a special dividend payment as more tax efficient. Now, it is again banging the China opening drum. Six months ago the stock price rose 60 per cent on that hope. At the very least, the recent snub of Cable & Wireless (C&W) bodes badly for a speedy opening. Hongkong Telecom may be an MPT subsidiary in waiting but a resolution to the shareholding issue may be some way off. Telecom companies are well suited to the leverage game by virtue of strong cash flows. An efficient capital structure should minimise the use of equity, generating higher earnings per share. Proudly claiming to be debt free may have a folksy ring but is hardly financially sophisticated. With the stock at $13.75 the company could buy back stock cheaply - most analysts believe it is fairly priced - increasing shareholder value. Where to buy the shares is the next question. Merrill Lynch believes that if persuaded parent Cable & Wireless would prefer to buy from the market rather than reducing its own stake below 50 per cent. Such a move would in fact extend C&W's control over Hong- kong Telecom. Elsewhere, shareholders would never allow such lazy capital management. The vagaries of future events in China means they have been given leeway. That can only last so long before Fidelity and others start banging on Hongkong Telecom's investor relations door demanding action. Cash may be king but nobody buys a telecom company for 8 per cent, however safely it is invested.