Fund managers have reacted cautiously to Hutchison Whampoa's planned spin-off of its telecommunications assets, questioning prospects for its Indian mobile business and grumbling about a stated zero-dividend policy. The conglomerate is bundling most of its global 2G assets, along with its Hong Kong 3G and fixed-line businesses, into Hutchison Telecommunications International Ltd (HTIL) for a dual initial public offering in Hong Kong and the United States next month. Hutchison would value HTIL at about US$5.9 billion, sources said. Hutchison shareholders would be allowed to subscribe on a preferential basis to one HTIL share for every 75 Hutchison shares they own, according to a public filing with the US Securities and Exchange Commission last week. But some fund managers questioned the benefits of investing in HTIL while holding Hutchison shares, as the conglomerate will retain a major stake in the spin-off. 'In fact, diluting its exposure to telecoms will be a good thing for Hutchison,' one fund manager said, adding that the telecommunications divisions had been dragging down the conglomerate's share price. HTIL provides mobile and fixed-line services in eight countries and territories - Hong Kong, India, Israel, Sri Lanka, Paraguay, Ghana, Macau and Thailand. The Indian business is seen as the principal growth area for the company in the medium term. Goldman Sachs, the sole global co-ordinator for the spin-off, said: 'With the strong forecast subscriber growth we have for the market, we believe India will continue to be a key asset and driver for HTIL.' It forecast India's wireless subscriber base to rise to 110 million by late 2006 from 28.3 million at the end of last year. Hutchison India had a 15 per cent share of the Indian market - and 25 per cent in the areas where it operates - at the end of the first half, according to Goldman Sachs. Indian operations contributed 61 per cent of HTIL's operating income in the first half. However, many fund managers remain unconvinced. 'The Indian unit will be spun off separately in a year or two,' said John Koh, a fund manager at Daiwa Asset Management. 'Yet it is still unclear whether the spin-off could generate exceptional profits.' Some also expressed concerns over India's highly regulated and increasingly competitive market, as well as consumers' low spending power. 'While income levels in India will improve, the majority of the households in India are still in rural areas,' one fund manager said. 'Hutch India would find it costly to reach these areas. And if the spin-off is a good deal, why is Hutchison exiting rather than issuing new shares?' In its SEC filing, HTIL also said that it had no intention of paying a dividend, something that has also alienated prospective investors. 'To us, the no-dividend policy in the near term is a main concern,' Mr Koh said. However, optimists pointed out that the sheer size of the listed company would attract a steady stream of fund investments. 'Given the massive market capitalisation of the company, HTIL will eventually be admitted into the Hang Seng or MSCI indices,' another fund manager said. He suggested investors could shift into HTIL from PCCW, which is struggling to reverse a decline in its core fixed-line business.
