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Pressure builds on PCCW as debt bites Jonathan Tam and Eunice Wong, Hong Kong iMail THE strain is beginning to show on the face of Pacific Century CyberWorks (0008) chairman, Richard Li Tzar-kai, as he watches his company`s share price plummet and his ability to raise cash diminish by the hour. Between now and February next year Mr Li needs to refinance US$9 billion (HK$70.2 billion) worth of debt. The deal with Australia`s Telstra Corp will reduce that debt to US$5.45 billion. Many analysts point to the fact that PCCW is a highly leveraged company and since the US$12 billion debt facility was put together to finance the takeover of Cable & Wireless HKT, there has been growing concern over CyberWorks` ability to cover its short-term financial commitments. According to basispoint, tranche A of the of PCCW`s original US$12 billion debt facility, for US$3 billion, was repaid from cash and assets held by PCCW/HKT and will not be refinanced. The remaining US$9 billion is a syndicated tranche which currently pays 1.15 per cent over Libor (London interbank offered rate) but steps up to 3 per cent at the end of February 2001, according to basispoint. The incentive, analysts say, is to refinance with a cheaper, long-term facility. PCCW can extend its borrowings by a minimum of US$3.6 billion or the outstanding amount. If PCCW decides to extend it can be done in two 12-month extension options. In other words, PCCW can extend the loan to the end of February 2003 with no additional fees, except of course the higher interest rate of 3 per cent. The US$3.555 billion PCCW will receive from Telstra means that the amount to be refinanced is US$5.5 to US$6.0 billion. The problem Richard Li now faces is that with his company`s share price plummeting he still has to raise cash to help finance his global connectivity (IP backbone) company in which PCCW and Telstra will each hold a 50 per cent equity stake. But the joint venture can only get off the ground if PCCW can raise US$2 billion in debt financing. Of that amount PCCW is expected to receive US$1.125 billion. According to Jardine Fleming Research analyst Jake Lynch, PCCW`s new gearing calculated on a total debt to total assets basis will be 57 per cent. ``We see from the debt coverage schedule this year, PCCW has what seems to be a financing risk.``If our earnings before interest, tax, depreciation and amortisation (Ebita) estimate is actually lower by more than 10 per cent and capital expenditure higher by more than 10 per cent, PCCW could be in for a tight squeeze.`` However, Mr Lynch says it is unlikely that creditors would foreclose. But the debt could either be restructured or refinanced by a new convertible bond or an asset sale. He suggests an equity issue is unlikely, due to the existing share overhang. Mr Lynch believes PCCW will seek an initial public offering (IPO) of selected business units, namely, IP Backbone and the Regional Mobile during the first quarter of 2001. He said these could raise more than US$1.5 billion for PCCW and reducing gearing to below 30 per cent, assuming raised proceeds draw down debt. ``The problem is with the timing, PCCW needs cash for opportunities today and also immediately in the first quarter of 2001.`` Just how PCCW raises the cash it needs has left analysts perplexed as they watch the company`s share price hovering around the $6 level. Yesterday, Richard Li told an investors` conference in Malaysia that the company may sell more stakes in its mobile units to fund expansion plans for the third-generation cellular network (3G). ``On the mobile business if we cannot go public, the company would like to go aggressively on 3G,`` Mr Li said. ``Most likely we would simply dilute down on that business,`` he said, referring to possible stake sales in PCCW`s mobile units. CyberWorks has already agreed to sell 60 per cent of its mobile venture to Telstra for US$1.68 billion. Analysts say the mobile unit of PCCW contributes between 13 and 18 per cent of the company`s total turnover. They say any further dilution of this business will further strain PCCW`s cash flow. Voon San-lai, vice-president of equity research at GK Goh Securities, however, believes that should the mobile and IP backbone companies be successfully spun off they could raise between US$1 and US$2 billion in cash for PCCW. ``We believe refinancing of the US$5.5 billion in February will be on track even without the IPOs of the subsidiaries of either mobile or IP backbone,`` Mr Li said. PCCW has dropped 27 per cent in the last two weeks. It shed HK$0.1, or 1.57 per cent, to close at HK$6.25 yesterday, the lowest in 11 months. 20 October 2000 / 01:29 AM |
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| Autor (Datum des Eintrages): | Kersken (20.10.00 08:08:43) |
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