PCCW's core telephone business has informed banks it will pre-pay US$641 million of debt - its third such reduction in borrowings in three weeks. Hong Kong's dominant fixed line operator plans to retire US$1.68 billion of debt acquired in a leveraged takeover three years ago. Of this, bankers confirmed that $503 million was repaid earlier this month, with the remainder to be settled next month. PCCW's surprise $403 million stock placement last week triggered a sharp stock sell off as investors, frustrated by an erratic dividend policy and botched takeover attempt of Cable & Wireless earlier this year, questioned its motives. Helen Wong, who heads banking for the public sector and 'hongs' at syndicate member HSBC, said that PCCW's principal revenue generating arm, Hong Kong Telecommunications, would be free of bank debt as a result of the pre-payment but had outstanding bond obligations of US$2.2 billion. 'We said we were going to pay down debt and we are doing it,' a PCCW spokeswoman said last night. That represents a more manageable two times earnings before interest, taxation, depreciation and amortisation for a firm which has been dubbed a 'debt repayment machine'. 'This means the company's debt level has improved significantly,' Ms Wong said. 'The lower the ratio, the higher the chance the company will be assigned a better debt rating.' Last week's equity capital raising led some analysts to speculate as to whether the firm was raising funds as a war chest for future acquisitions in defiance of earlier statements that it would focus on its core business and re-pay debt. Such fears and the effect of earnings dilution arising from the share placement - conducted at $4.40 a share - pushed the stock to a historic low of HK$4.35 on Friday. The firm has pledged a more consistent corporate strategy under its incoming chief executive Jack So Chak-kwong.