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PCCW Pulls Mega Debt Issue As Bond Markets Waver

by Mary Swire, Tax-News.com, Hong Kong

23 July 2001

On Friday night Richard Li Tzar-kai's battered telco flagship PCCW, which has seen its share price plummet more than 92 per cent from its peak last year, had to pull the biggest-ever Asian debt-raising issue outside Japan. PCCW had been trying to issue US$2.5bn in 30-year and 10-year bonds.

PCCW stressed it had no immediate need to refinance its debt and would continue to evaluate and assess its refinancing options. Bankers said the company had been trying to take advantage of the low interest rate environment, but that the volatile bond market conditions caused by Argentina's financial difficulties had increased the cost of borrowing for Asian companies by up to 50 basis points.

The company had already abandoned the 30-year part of the issue earlier in the week and had raised the yield spread on the 10-year bonds to 315 basis points over US Treasuries. When it became clear during Friday that weak investor demand would mean that the issue could only succeed at 350 over, the company decided that was too expensive.

Some analysts were critical of the way the deal was introduced to the market. One fixed-income investment banker quoted in the South China Morning Post said: "A US$1.5 billion deal would still have been a mega-bond transaction. Yet the deal will be seen as a failure because the group, in typical Richard Li style, came to market with brash plans to launch the biggest bond deal ever in Asia."

Others said scrapping the issue at this stage was the right move. "Pulling out is right for shareholders and I do not take this too negatively," said Fan Jiang, head of Asian fixed-income research at Goldman Sachs. "I see no point in doing a deal over 300 [basis points over treasuries rates]."

Efforts at lead financial adviser Morgan Stanley finally ended in failure at 8.30pm on Friday. Other arrangers were Barclays Capital, HSBC, and JP Morgan.

PCCW wanted the money to pay off more expensive existing debt forming part of the US$4.7bn of debt it incurred when taking over Hong Kong Telephone last year. Cable & Wireless now looks to have got the long end of the stick with that deal, sitting on a massive hoard of cash it doesn't know how to spend, and watching margins shrink at HKT as the Internet and fibre optic over-capacity threaten fixed-line revenues.

CyberWorks closed down 1.16 per cent yesterday, at HK$2.12, a decline of 56% in 2001. Last year the share price peaked at $28.50.

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