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Richard Li Tzar-kai's Pacific Century CyberWorks has secured a cash injection of US$3.55 billion to help ease its debt burden after announcing a revised alliance with Australia's Telstra Corp.

Under new terms agreed late on Thursday night, CyberWorks will relinquish control of its mobile-phone business and receive less than originally proposed from an investment by Telstra in CyberWorks convertible notes.

For CyberWorks, the deal means a higher cash injection than previously envisaged.

It will receive US$2.43 billion from Telstra, together with US$1.12 billion from debt to be raised by the Internet protocol (IP) backbone venture involved in the alliance.

'This will allow us [CyberWorks] to reduce our debt to less than US$5.5 billion - a level few thought possible when we acquired Cable & Wireless HKT just seven weeks ago,' chairman Mr Li said yesterday.

The HKT takeover saddled CyberWorks with US$12 billion in debt, although that has since been cut to US$9 billion.

Telstra had sought to renegotiate the alliance to reflect an almost 50 per cent slump in CyberWorks shares and the global adjustment in telecom valuations since the original deal was announced in April.

Under the revised terms, Telstra will pay US$750 million - half the original amount - for CyberWorks convertible notes.

The exercise price of the notes will be based on the average of the closing price of CyberWorks in the next 45 days, but CyberWorks will have the right to redeem early.

Telstra is to pay US$1.68 billion for a 60 per cent stake in CyberWorks' mobile business - essentially HKT's CSL arm.

The price values the business at US$2,947 per subscriber.

That is a discount of 25 per cent compared with the original deal, under which CyberWorks was to sell 40 per cent of the business to Telstra for US$1.5 billion.

'Do not look at what we give, but what we gain,' said Alex Arena, deputy chairman of CyberWorks' management board and the chief negotiator in the transaction.

'The real value lies in the whole package, especially the IP-backbone joint venture.'

Their IP-backbone joint venture, which generates US$2 billion in revenue a year, will be the largest connectivity business in Asia.

CyberWorks says it has already attracted many multinational interests wanting to take a stake in the business.

Mr Arena said CyberWorks would retain strong management rights in the business, even when its shareholding is eventually reduced to between 25 per cent and 35 per cent.

As part of the agreement to bring in more cash proceeds for CyberWorks, the joint venture intends to borrow US$2 billion, of which US$1.12 billion will be paid to CyberWorks in January.

'The overall debt level is not seen reducing after the off-balance sheet financing,' said Ronald Chan, analyst at Dresdner Kleinwort Benson.

Analysts pointed out that although CyberWorks may seem to be receiving more cash than in the original US$3 billion alliance, its level of debt actually rose to US$5.5 billion, or US$63 million more than in the previous agreement.

The market appears to like the alliance.

Telstra bucked the global market downfall by gaining 1.7 per cent to close at A$5.95.

CyberWorks, which was suspended yesterday, was also expected to react positively to the transaction.

'It could have been worse without the deal,' said Jonathan Iu, SG analyst. 'Now it's a relief for everyone that their strategies are in place.'

UBS Warburg, which advised CyberWorks in the alliance, said the loss of control in the mobile unit might not be a bad thing.

'It is a blessing in disguise,' said David Chin, corporate finance director.

'CyberWorks can shift off the financial burden for 3G services,' Mr Chin added.

He estimates that CyberWorks might need US$2 billion in capital expenditure to fund the next generation mobile expansion.

Graphic: cybergbz



Revised Telstra deal reduces debt 'to a level few thought possible', says Richard Li