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SCMP Reporter

Valuation remains a sticking point while stock is suspended
PCCW chairman Richard Li Tzar-kai and executives of China Unicom have clashed over the pricing of a joint privatisation of  PCCW, leaving one of Hong Kong's more prominent stocks suspended from trading for two weeks.
Initial privatisation price talk in the range of HK$4 a share has been considered by Unicom as so low that completing a deal would be difficult.
Some minority shareholders have said they will accept not  less than HK$5  per share, the general level at which the shares have traded over the past  year.
The company's shares closed at HK$2.75 on October 13, their lowest close since April 1999.
That was  a day after PCCW ended  the sale of a 45 per cent stake in  subsidiary HKT Group Holdings after private equity funds including TPG, Bain Capital, Macquarie and Providence Equity Partners entered  bids of as  low as US$450 million, market sources said.
When the deal was launched in July the expected valuation was between US$1.35 billion and US$2.5 billion.
PCCW suspended its stock  on October 14 at HK$2.90 a share. The shares  had dropped 39.08 per cent since  July 2 as global markets reeled from  recession fears and amid doubts the sale could be completed.
The lower the offering price from Mr Li and Unicom for the privatisation, the more likely objections will be raised that the two parties are taking advantage of  the unusually low share price and makes getting  a deal done more troublesome.
'The Chinese don't want a public brawl and they don't want the deal to fail,' said  a source.
Fallout from a troubled  deal could also cost the leadership of China Unicom political capital in Beijing as they navigate the final stages of  the restructuring of the mainland's  telecommunications industry and begin to  take on larger rival China Mobile.
China Unicom, the mainland's second-largest mobile phone  operator, completed the US$16 billion acquisition of China Netcom on October 15.
China Netcom acquired  a 19.94 per cent stake in PCCW in January 2005 for HK$5.90 a share.
Mr Li, along with Singapore-listed Pacific Century Regional Developments, a vehicle he controls, and Unicom are  PCCW's two largest shareholders. Mr Li and PCRD together hold a 28.29 per cent stake.
PCCW's board convened twice last week expecting to be presented with a privatisation plan but only received vague proposals of a deal.
They  gave Mr Li and Unicom  the weekend to agree on a concrete proposal and intended to lift the share suspension  as soon as possible, sources said.
'The usual way to do this is agree on a deal and then stop the shares to make an announcement. Where else would you stop the shares before then? It's unreal,' said  a minority shareholder.
PCCW declined to comment.
The lengthy  share trading halt in one of Hong Kong's largest  firms has also caused  consternation in the wider financial community.
'It just doesn't look like good corporate governance and raises a question mark over Hong Kong as a financial capital when powerful locals do something like this,' said another source.
One of the few  recent examples of  a large Hong Kong  company locking up its shares for an extended period  is   conglomerate Swire Pacific.
It  suspended its shares  for four days in July 2006 before announcing  that its  Cathay Pacific  Airways unit would pay US$1.58 billion for Hong Kong Dragon Airlines.



PCCW and Unicom clash  over privatisation pricing