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PCCW Will Make Further Non-Core Disposals

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

03 July 2002

Pacific Century CyberWorks chairman Richard Li Tzar-kai told analysts yesterday in a conference call that he plans to sell more non-core assets this year in order to reduce debt further. Just a few days ago PCCW announced the sale of its 40% stake in mobile business CSL to Australian joint-venture partner Telstra for US$614 million, taking a loss of US$216m on book value. Proceeds from the sale reduce PCCW's debt from US$4.9bn to US$4.2bn.

Mr Li told analysts yesterday that CyberWorks would probably sell its property division and other assets outside the core telecoms business. The company incurred most of its debt when buying Hong Kong Telephone from Cable and Wireless in 2000.

Morgan Stanley said the sale of CSL was positive for CyberWorks, but that it could lose potential upside. "PCCW has parted with a profitable leading cellular franchise in Hong Kong as well as giving up its status as integrated telecoms operator," it said. "In the past 12 to 18 months, CSL has been the source of positive news flow for the group."

However, the sale of CSL is consistent with the vision expressed by Mr Li when presenting PCCW's 2001 results in March. At a press conference then, Mr. Li defended his controversial plan to pin future growth on providing New Economy-style services in mainland China. PCCW's vision is to "take our core fixed-line business in a mature and competitive market and leverage it with value-added technology that will drive growth - and it is working," Mr. Li told reporters.

Mr Li says that the strategy will pay off down the road by recruiting major Chinese and multinational clients who will eventually turn to PCCW for higher-end consulting and telecom services.

Yesterday, reassuring investors of its cautious approach to capital expenditure, Mr Li said the company would not make any acquisitions of more than US$100 million as it seeks to expand its systems integration business in the next two years. He said the company would make some strategic announcements outside of Hong Kong in coming weeks that would call for low capital expenditure.

PCCW shares fell 0.5% yesterday to close at HK$1.83, more than 95% below their peak after the acquisition of HKT.

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