Pacific Century CyberWorks has made a HK$3.23 billion provision for its Network of the World (NOW) subsidiary due to a share-option contract that is forcing it to raise its stake in the stricken multimedia unit. Under the agreement, US chip giant Intel has the right to exchange its remaining minority shareholding in the former Pacific Convergence Corp (PCC) - the subsidiary that later became NOW - into new CyberWorks shares. CyberWorks said the agreement gave Intel the option to exchange its holding into more than one billion new CyberWorks shares 'even though the fair value of that subsidiary had substantially declined since entering into the option agreement in 1999'. Having assessed the prospective financial performance of NOW, CyberWorks management believed the exercise of the option was 'assured'. 'The company's additional investment in the subsidiary will initially have to be recorded at the fair value of the shares issued,' CyberWorks said on Thursday. 'Given the decline in value of the subsidiary, the company will experience an immediate loss on its additional investment in the subsidiary.' Accordingly, the option agreement was considered an onerous contract, it said. Intel has so far exercised the option for 486.39 million new CyberWorks shares. It began exercising the option this year, although it originally agreed to sell its stake in the joint venture in 1999. Under new accounting rules, listed companies are required to reassess the value of contingent assets and liabilities under onerous contracts. If there is any change in the fair value of the contingent liabilities, the listed company is required to report the fall or increase in its profit and loss accounts. As long as Intel has not fully exercised the option, the agreement will continue to be an onerous contract and therefore CyberWorks will be required to reassess the fair value of the remainder annually. The HK$3.23 billion provision was included in CyberWorks restated accounts for last year, which revised its net loss from HK$6.9 billion to HK$129.29 billion. Accountants said CyberWorks was unlikely to be able to write back the provision as there was little chance of NOW's value rebounding. CLSA analyst Stephen Leung said CyberWorks should have made enough provisions for NOW: 'I think the company has fully provided for its NOW investments, taking advantage of a huge one-time loss and writing [it] down as much as it could.' A CyberWorks official declined to comment on the book cost of NOW at present, but said that the company had made sufficient provisions for the subsidiary. PCC was a 60-40 joint venture set up between CyberWorks and Intel in March 1998 to provide PC-based connections to the Internet through TV screens. The unit once had grand ambitions to build a global multimedia service, but these were scaled back dramatically this year. The size of Intel's stake in CyberWorks is unclear, but sources said the US company had not sold any of its shares so far. CyberWorks shares yesterday bucked the market, rising 10 HK cents to HK$1.81, against a 2.62 per cent drop in the benchmark Hang Seng Index. Analysts have upgraded their earnings forecasts for the company after it announced better-than-expected interim results on Thursday. CyberWorks reported net profit of HK$935 million for the first six months of this year, against a HK$6.9 billion loss for the whole of last year.