The chairman of China Netcom Group (Hong Kong), which is planning a US$1.2 billion listing in Hong Kong and New York, on Wednesday admitted its parent company might not reach an agreement to buy PCCW's fixed-line assets. Speaking from London to reporters in Hong Kong via video, Zhang Chunjiang said: 'The talks with PCCW are conducted by our parent company and no agreement has been reached yet. 'And there is a possibility of no deal at all.' Mr Zhang, who is also president of parent company China Network Communications Group Corp (China Netcom), is a key negotiator in the talks with PCCW. This is the first time a top management figure from the mainland's No2 carrier has publicly admitted the possibility of the talks being abandoned. Mr Zhang's effort to talk down investors' expectations of a deal is expected to ease fund managers' fears of possible future pressure being put on the listing candidate by the parent. Fund managers are concerned that, if China Netcom were to buy a substantial portion of PCCW's shares, the heavily geared parent company would need to use the listing vehicle to raise money to fund the purchase. Mr Zhang would not elaborate on why a deal with PCCW may not come to fruition. 'Given the time constraint, I don't think I can go into much detail on the PCCW issue,' he said. According to sources, a valuation gap of up to HK$12 billion has been the stumbling block between the two carriers. Last week, PCCW deputy chairman Jack So Chak-kwong denied a South China Morning Post report that talks to sell the company's fixed-line assets to China Netcom had broken down. Yesterday, a PCCW spokesman said Mr Zhang's comment was 'consistent with our previous statements to the stock exchange'. In its announcement in August regarding the talks with China Netcom, PCCW said the discussions were 'at an advanced stage but no definitive agreement or letter of intent has yet been signed'. Mr Zhang also confirmed that China Netcom vice-chairman Leng Rongquan would join rival China Telecommunications Group Corp as deputy general manager, adding to last week's controversial merry-go-round of top management among the mainland carriers. However, he pledged that he, along with the firm's chief executive, Edward Tian Suning, as well as chief financial officer Fan Xingcha would stay in their current positions with the listing vehicle, although he could not say for how long. The sudden decision by the state-owned Assets Supervision and Administration Commission of the State Council to swap the top bosses of the country's four major carriers has highlighted the regulatory risks of investing in mainland telecommunications operators. However, sources said fund managers were not too concerned about the reshuffle. The international tranche of China Netcom (HK)'s offering, accounting for 90 per cent of the issue, was said to be about three times covered after corporate clients and strategic investors placed their orders.
