China Network Communications Group Corp (China Netcom) has offered to buy a 20 per cent stake in PCCW. The proposal by the mainland carrier was confirmed by PCCW on Tuesday after shares in the local fixed-line carrier soared as much as 7.1 per cent in the final 20 minutes of trading, following a report that the once-stalled talks between the two companies were close to a breakthrough. PCCW said in a statement that Netcom had 'recently expressed interest' in buying 20 per cent of the company through a new share issue, adding that 'discussions on co-operations and new shares are continuing but no agreement has yet been reached'. PCCW did not disclose how much Netcom would be expected to pay for the stake. With a market capitalisation of $26.33 billion, a 20 per cent stake in PCCW would cost Netcom about $5.2 billion, based on yesterday's closing price. PCCW can issue new shares worth up to 20 per cent of the company without seeking approval from its shareholders. The progress in the talks comes just a few weeks after the Chinese carrier listed its unit - China Netcom Group Corp (Hong Kong) - in Hong Kong and New York. Netcom raised $10.14 billion by spinning off part of the group's assets in the listing vehicle. If successful, the PCCW deal will make the mainland carrier PCCW's second-largest shareholder. The issue of 20 per cent in new shares would also result in PCCW chairman Richard Li Tzar-kai's 32.67 per cent stake in the company being diluted to about 27.2 per cent. PCCW first announced in May that it was in talks with Netcom about the possible sale of its fixed-line assets. However, the talks stalled in September over a valuation dispute and the fact that the mainland company was busy preparing for last month's initial public offering. The news about a possible deal, which surfaced in a Reuters report yesterday, resulted in PCCW's biggest one-day gain on the stock market in six months. Having traded between $4.55 and $4.65 for most of the day, the stock shot up to $4.925 before settling at $4.90, concluding the day with a 5.4 per cent gain. The counter was heavily traded with 57.6 million shares changing hands, or 1.8 times more than the average trading volume over the past month. Almost 74 per cent of business was conducted in the last 20 minutes of trading. In response to the news, a Netcom spokesman said: 'The group is still in talks with PCCW and no agreement has been reached.' He added that there was no key development regarding the negotiations and reiterated the possibility that the two parties would fail to reach a deal. The news also boosted the share price of Netcom's listed firm. It rose 15 cents or 1.6 per cent to an intraday high of $9.50. The stock has risen 13.1 per cent since it listed on November 17.
