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It may be a ploy to push KPN out of the venture because it rejected a $12.9 billion fund-raising exercise

Hutchison Whampoa has filed a lawsuit against KPN, its third-generation (3G) mobile-service partner in Britain, for rejecting a GBP1 billion (HK$12.97 billion) fund-raising exercise two months ago.

The move is seen as a forcing action by Hutchison to push KPN out of the poorly performing mobile venture, 3UK, after the debt-laden Dutch firm indicated 10 months ago its plan to dispose of its 15 per cent stake.

The Li Ka-shing-controlled conglomerate is suing KPN for refusing to commit to a GBP150 million loan, saying the move breached its shareholders' agreement.

Hutchison injected GBP650 million into its 65 per cent-owned subsidiary while NTT DoCoMo contributed GBP200 million for its 20 per cent stake.

Rejecting the cash call in late April, KPN said it had no legal obligation to recapitalise 3UK and did not participate. Hutchison took up the unwanted GBP150 million portion.

3UK, which started offering the high-speed mobile-data service three months ago, asked its three shareholders for an additional GBP1 billion financing to satisfy its bankers, who were concerned about the delayed service launch.

The service has signed up about 25,000 customers, a figure that falls below the ambitious schedule of securing a million users by the end of the year.

Dropped calls, clunky handsets and poor battery life have meant consumers have failed to tune into a project whose licence cost the firm GBP4.38 billion in April 2000.

In a bid to attract users, 3UK last week slashed tariffs, undercutting competing operators by 30 to 50 per cent in a move that analysts said compromised its premium product positioning.

'We have instituted legal proceeding in London against KPN for breach of contract and to claim damages for that breach,' a Hutchison spokeswoman said.

She said there had been no shareholding change since the capital injection. 'We'll act in accordance with the shareholders' agreement which provides shareholders with a number of options.'

Analysts said Hutchison could be using the lawsuit to force KPN to decide whether it was in or out of the 3UK venture.

Bloomberg, quoting the legal document, reported that Hutchison was liable to buy the Dutch company's stake in 3UK and that KPN was also demanding damages from Hutchison. Neither Hutchison nor KPN would comment.

Merrill Lynch analyst Alistair Scott said: 'One has to assume that if KPN is a seller at some point, Hutchison would be the logical buyer.'

Hutchison's partnership with KPN began in June 2000 when it sold a 15 per cent stake in 3UK for #900 million, a premium compared with the #4.38 billion cost of a licence in Britain.

The two formed a consortium to bid for a German licence, but Hutchison chose to walk away, saying the price was too high.

KPN ran up debts as high as 23 billion euros (HK$210.04 billion) but has reduced its exposure to 12.4 billion euros after an aggressive cost-cutting programme.

In August last year, KPN surprised the market by writing down almost all of its GBP900 million British investment, saying it was no longer a core asset.



Hutchison sues 3G partner in UK