C&W fuels guessing game over CyberWorks holding

For almost a year, it has been a hotly debated issue among telecommunications analysts on both sides of the globe - what will Cable and Wireless (C&W) do with its remaining 14.5 per cent stake in Pacific Century CyberWorks?

The answer, they hope, will be revealed this weekend when the lock-in period for half of C&W's remaining holding expires.

Analysts predict that a stake sale would remove a temporary overhang in CyberWorks' shares and should boost both companies' stock prices in the short term.

Richard Li Tzar-kai's Internet and telecom group has been punished by investors amid the uncertainty, with CyberWorks' share price falling almost 7 per cent since January. C&W is also trading at half what it was worth a year ago - at about 820 pence.

But at present levels, C&W may choose not to sell its CyberWorks shares immediately.

One analyst said C&W had GBP4.2 billion (about HK$47.69 billion) in reserves and did not need the cash.

But Philip Carfe, analyst at Schroders Salomon Smith Barney, said everyone knew they were inevitably a seller and that would continue to hold down CyberWorks' price.

A further 5 per cent was wiped off CyberWorks' share value on Thursday last week on speculation C&W wanted to trade its stake for CyberWorks' 50 per cent stake in its Internet protocol (IP) backbone Reach, formed with Australia's Telstra earlier this month.

A C&W spokesman declined to comment on what he described as 'market speculation'. While this may be a feasible way out for C&W from its catch-22 situation, there are huge implications involved for something that would not even be a core acquisition.

'Linking with Telstra would . . . improve Cable and Wireless' reach in the smaller countries of the Asia-Pacific region and it gives them a way of exiting CyberWorks without demanding more liquidity from investors,' one telecoms analyst said. 'But a Telstra joint venture is not at the top of their list of options.'

C&W already has an operation in Australia, and although it is in talks to sell its mobile division of C&W Optus, it is likely to retain the data and business services.

'Could it really accept shares in a business also run by Telstra, which is the main competitor to Optus? That would seem odd,' another telecoms analyst said.

As Simon Carrington, senior telecoms analyst at Credit Suisse First Boston said: 'The only bit of Asia they are interested in is Japan.'

C&W, which is investing US$1.4 billion in a national fibre-optic network in Japan to deliver IP and data services to Japanese business customers, refers to Japan as its strategic hub in Asia.

Nor would a deal to swap assets really be a viable option for CyberWorks, as this would leave the struggling Hong Kong company with no exposure to high-growth telecoms sub-sectors.

Other options open to C&W hinge mainly on finding a corporate buyer for its remaining stake. Companies rumoured to be interested include Singapore Telecom, Telecom Italia, and LG Telecom of South Korea.

The consensus among analysts in London at least is that C&W feels no urgency to make a decision, so the question on everyone's lips may remain unanswered for some time yet.