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SCMP Reporter

Pacific Century Regional Developments (PCRD) - parent of Pacific Century CyberWorks - is to issue United States semiconductor giant Intel with US$100 million in secured exchangeable redeemable bonds.

If the bonds, which carry a 3 per cent annual coupon, were fully exercised, PCRD's stake in CyberWorks would fall 1.4 per cent, to 32.1 per cent.

Intel's investment arm, Intel Capital, holder of the US$100 million secured redeemable exchangeable bonds, has the option to convert the bonds into 312 million of PCRD's shares in CyberWorks, at an exercise price of HK$2.50 each.

This is a 9.8 per cent premium to yesterday's CyberWorks' closing price of HK$2.275.

Intel can convert the bonds into shares and sell them at any time before the 2007 maturity on the bonds.

The structure of the transaction is similar to the US$250 million exchangeable bonds PCRD issued to American International Group (AIG) in October.

Under that deal, AIG could exchange the bonds into 851 million CyberWorks shares at an exercise price of HK$2.29 any time before the bonds mature in 2006.

The Intel deal was intended to strengthen the strategic partnership between the firms, CyberWorks executive vice-president Rebecca Leung said.

BNP Paribas Peregrine regional telecommunications research director Voon San Lai said the deal would benefit both PRCD, which could have extra cash to finance aggressive investment plans in the Southeast Asian region, and Intel, which could increase its CyberWorks' stake and so foster stronger ties.

But ABN Amro telecoms analyst Joe Locke expected CyberWorks' shares to remain weak, because they would be facing an overhang from the risk of Intel selling down its stake.

'It is not a huge overhang, but even a small overhang will still hurt the share price,' he said.

ABN Amro has retained a 'reduce' recommendation for CyberWorks with a long-term target price of HK$1.80.

Under a 1999 restructuring plan, Intel has the right to exchange its remaining minority shareholding in its CyberWorks' joint venture Pacific Convergence, which became CyberWorks' interactive business unit Network of the World, into 1.08 billion new CyberWorks shares. Intel agreed to swap its 40 per cent interest in the venture, set up between CyberWorks and Intel in March 1998 to provide PC-based connections to the Internet through TV screens, into CyberWorks shares.

So far, Intel has exercised a total of 546.39 million shares in CyberWorks. With the new exchangeable bonds, Intel could boost its interest in CyberWorks to 5.8 per cent.

Meanwhile, PCRD's interest in the SAR-listed telecoms company would be further diluted - to 28.4 per cent.

If AIG exercised its share option PCRD's interest would be down to about 24.7 per cent.

Mr Locke said: 'This is not a bad deal. It is not that the company did something bad to its shareholders. It gets down to how much we should pay for this company. And I think this is one of the most expensive telecoms companies in the region.'

Based on enterprise value to earnings before interest, tax and depreciation and amortisation,  CyberWorks' share price was nearly triple Korean Telecom's price.

It was also about 30 per cent higher than Singapore Telecom's price and 50 per higher than China Mobile, Mr Locke said.



PCCW parent, Intel in US$100m bond pact