Pacific Century CyberWorks' treatment of its investments in two joint ventures with Telstra of Australia is the unknown factor in its interim results to be released today. Some analysts believed a new accounting arrangement, in response to rules promulgated at the beginning of the year, would prompt write-downs for CyberWorks' 40 per cent stake in Regional Wireless Co - which owns mobile-phone operator CSL - and its 50 per cent stake in Internet protocol backbone firm Reach. Their opinion was based on Telstra's decision to make A$999 million (about HK$4 billion) in provisions for its stake in Regional Wireless for the first half of the year. Merrill Lynch said: 'With Telstra's write-down of its investment in Regional Wireless, we expect CyberWorks to follow suit.' It estimated the write-down to be US$320 million, offset by a US$2.25 billion book gain from CyberWorks' sale of CSL to Regional Wireless. Regional Wireless and Reach were expected to record annual goodwill amortisation expenses of US$68 million and US$130 million respectively over 20 years, Merrill Lynch said. It expected CyberWorks to post an HK$805 million after-tax profit. JP Morgan estimated CyberWorks' stake in Regional Wireless to be revised downwards from a valuation of US$2.8 billion for 100 per cent of the joint venture. 'It is only an accounting transaction,' the brokerage said. It added that its net profit estimate was HK$649 million, with huge uncertainty surrounding the amount for write-downs. Part of the blame for the uncertainty was linked to the new accounting rules which require all listed companies to capitalise goodwill and amortise it for a maximum of 20 years. In addition, the value of the remaining goodwill must be accessed annually to determine if it is necessary to make provisions for the impairment in goodwill. Listed companies charging goodwill against their reserves last year were required to revalue the goodwill and book impairment of goodwill, if any, against their profit and loss account. Brokerage Nomura International (Hong Kong) did not expect any write-offs from CyberWorks' investment in Regional Wireless and Reach, saying its stakes were already stated at book cost. Instead, it believed CyberWorks would write back US$969 million goodwill from the sale of backbone assets to Reach. It said the remaining US$2.8 billion notional goodwill of Reach was likely to be amortised at US$140 million annually. Its HK$213 million estimate of CyberWorks' net profit was at the low end of the market. Anticipating a net profit of HK$822 million excluding any extraordinary items, Morgan Stanley said CyberWorks' interest expenses would be a main swing factor for its set of interim results. 'Burdened with US$7.3 billion debt, we currently estimate that CyberWorks would have to pay US$565 million in interest expense this year based on an average cost of debt of 6 per cent,' the brokerage said. However, it believed CyberWorks might have saved HK$200 million to HK$250 million in interest due to lower interest rates. In the light of increasing competition that CyberWorks faced, Deutsche Bank hoped management would address the issue of cost and capital expenditure control.
