PCCW has sold US$400 million of fresh equity by issuing new shares at a discount of up to 10 per cent to its last traded price, saying it will pay back debt. It is estimated that the surprise capital raising exercise will lower the heavily indebted telecommunications carrier's liabilities to less than US$4 billion, the lowest level since the company took over C&W HKT three years ago. PCCW has aggressively trimmed borrowings by selling assets and reining in capital expenditure, but investors may not welcome the fresh share placement as it will dilute its earnings by an estimated 8 per cent. The firm appointed Citigroup to place 715 million new shares at between HK$4.37 and $4.56 each, a discount of 6 to 10 per cent to on Wednesday's closing price of $4.85. Majority shareholder Pacific Century Regional Development (PCRD), controlled by PCCW chairman Richard Li Tzar-kai, will sell its existing shares and subscribe the same amount of stock in a top-up arrangement. Six weeks ago, former shareholder Cable & Wireless severed its ties with PCCW by unloading all its remaining shares for US$400 million. 'This is not very nice. Every time they place out shares, they place out at a discount to previous rounds, dragging the share prices lower and lower,' said Steven Leung Wai-yuen, director at UOB Kay Hian Hong Kong. Mr Li will see his personal stake in PCCW diluted to 31.8 per cent from 36.6 per cent. PCCW, which inherited US$12 billion debt after taking over the former telephone monopoly, has paid down the debt through its core fixed-line cash flow and by disposing of assets. The company has taken several trips to the loan and bond markets in the past three years to lengthen its debt maturity profile past 2007. A PCCW spokeswoman confirmed the share placement, adding that proceeds were 'entirely 100 per cent for debt repayment'. Citigroup Global Market (Asia) chairman Francis Leung Pak-to said the placement was fully-subscribed but the pricing would not be determined until the United States markets closed for trade yesterday. Mr Leung said the placement proceeds, together with the company's estimated earnings, were likely to put PCCW into positive equity as soon as this year. PCCW paid back US$1.03 billion to lenders from cash reserves this month. Some analysts questioned the wisdom of raising capital to reduce debt at the expense of diluting existing shareholders' interests. 'Not a very convincing case,' said Wallace Cheung, an analyst at DBS Securities. 'There is the question of why the company wants to depart from its usual debt refinancing.' CSFB telecoms analysts estimated that the earnings per share of PCCW's existing shareholders would be diluted by 8 per cent, taking into account the interest payments to be saved against the enlarged share structure. BNP Peregrine Paribas analyst Voon San Lai said: 'This is a positive arrangement from a fundamental perspective, but it is a negative outlook from the share perspective as the shares are being offered at a big discount.' Since August 2000, the telecoms firm has issued new shares seven times to companies and individual investors. PCCW will hold a press conference to detail its fixed-line business strategy today.