UPDATE 3-PCCW's HKT Trust to raise $1.2bln in Hong Kong IPO

 

Tue Nov 22, 2011 11:13pm EST

http://www.reuters.com/article/2011/11/23/pccw-hkttrust-idUSL4E7MN00G20111123
 

* HKT Trust priced at bottom of indicative range
* Dealing in shares to begin Nov 29
* First single investment trust to list in Hong Kong
* Global turmoil dents demand despite high yield offered
* PCCW to expand media business - analysts
By Elzio Barreto and Lee Chyen Yee
HONG KONG, Nov 23 (Reuters) - PCCW Ltd's telecom business spinoff, HKT Trust, is raising $1.2 billion in a Hong Kong IPO, pricing the deal at the bottom end of an indicative range as global market turmoil dented demand despite the high yield offered.
The dominant Hong Kong fixed-line operator will be able to use the money to expand the media business of what's left of PCCW after the spinoff by expanding its TV operations and investing in content providers in China, fund managers and analysts said.
On Wednesday, PCCW's shares, which have lost around 15 percent so far this year, fell 3.65 percent, lagging the main Hang Seng Index's 1.95 percent fall.
PCCW said in statement on Wednesday that HKT Trust's initial public offering was priced at HK$4.53 per share-stapled unit, the bottom of an indicative range of HK$4.53 to HK$5.38.
"It's not a great time for their IPO, but better now than later. Given the current economic situation, who knows what the markets will be like next year?" said Patrick Shum, president of BMI Funds Management.
HKT Trust offered 2.05 billion share-stapled units, putting the total deal at HK$9.3 billion ($1.2 billion), the biggest Hong Kong offer since Citic Securities Co Ltd raised $1.7 billion in September. The units will start trading on Nov. 29.
PCCW said in October in its prospectus that part of the proceeds will be used to repay debt for the telecoms business. Should the net proceeds exceed HK$7.8 billion, PCCW will use some of the funds to invest in its media and solutions businesses.
The telecoms spinoff may venture into the 4G technology mobile business in the future with competition already stiff in Hong Kong's 3G market.
The 3G business "is not an easy business. In Hong Kong, it's already quite competitive, if you look at Smartone, Hutch," Shum said, referring to Hutchison Whampoa and SmarTone Telecommunications Holdings Ltd. "I won't be surprised if they are waiting to do 4G."
As for the rest of PCCW, Hong Kong tycoon and chairman Richard Li will likely expand the media business. PCCW, which owns NOW cable TV, has already applied for a free-to-air TV license, which will help boost its TV advertising revenue if it gets approval.
"If they are going to make the investment, it will be the content company in China," said Alan Kam, an analyst with Daiwa Capital Markets. Li has already invested in a Chinese online video service provider called PPstream.
Li also owns the Chinese-language Hong Kong Economic Journal newspaper and English-language website www.ejinsight.com, although he will probably be unable to inject the assets into PCCW due to local media regulations.
PCCW launched the IPO on Nov. 9. HKT Trust, which will become the first single investment trust to list in Hong Kong, was offered at an attractive 2012 yield of 7.5-8.9 percent. At the offer price, the units will have 2012 yield of 8.9 percent.
However, Hong Kong retail investors, who care more about the first-day pop of IPOs, shied away from the offer, while institutional investors were generally cautious on the poor performance of some big listings this year and HKT Trust's rich valuations.
"Despite the very challenging economic environment and financial markets during the roadshow, HKT has attracted a broad list of globally renowned institutional investors who appreciate the high quality, defensive nature of HKT," Alexander Arena, PCCW's group managing director, said in a statement.
The trust consists of the telecoms business of PCCW and was spun off, but the structure will help Li retain a majority of the business.
China International Capital Corp, Deutsche Bank, Goldman Sachs and HSBC were hired as joint global coordinators for the offering, with JPMorgan , Standard Chartered and Singapore's DBS also helping to underwrite the deal.