PCCW under pressure after bond pullback

PCCW boss Richard Li faces a loss of investor confidence after a bond issue was pulled last week

By Staff and reports

HONG KONG, China (CNN) -- Shares in the embattled Internet and telecom group PCCW nosedived Monday after the firm scrapped plans for a $2.5 billion bond offering.

Analysts commend PCCW's decision to pull back the offer, but investors think otherwise.

With the stock trading at 52-week lows, investors are viewing the decision as another black mark on the telco's ability to execute.

Volatile bond market

PCCW announced on Friday night that it is not going to proceed with the bond issue to refinance a portion of its existing $4.7 billion bank term loan.

PCCW cancelled the massive bond offer citing external events that were beyond the control of the company, namely the bond market nervousness regarding Argentina.

"Present volatile bond market conditions arising from Argentina and other uncertainties in the emerging markets have resulted in potential pricing that the Company finds unattractive at this time in comparison with its existing financing," the company said in a statement.

The company had planned to use proceeds from the investment grade offering partially to refinance its $4.7 billion bank debt that comes due in 2004, 2006 and 2008.

PCCW's debt burden results from its $28.5 billion stock and cash purchase last year of Hong Kong's dominant fixed line carrier Cable & Wireless HKT.

'Rational decision'

PCCW watchers say the pull back is a wise move.

"It's absolutely right for the company to call off the deal and withdraw from the market," Fan Jiang, head of fixed income research at Goldman Sachs, told CNN.

"It makes economic sense, it's a rational decision, and has nothing to do with pride. In Asia, we think too much of price and face. It's not a time to consider pride, but what's right."

A report from Credit Suisse First Boston released on Monday reiterated Jiang's analysis.

"(We) believe that this is a rational decision on the part of the company given that they are currently not in a desperate situation to execute this transaction," it said.

While institutional investors might recognize that PCCW has no immediate need to proceed with the bond issue, retail investors are regarding the scrapped deal as another credibility blow for the company.

Shares of PCCW traded 5.88 percent lower Monday afternoon at HK$2.00, equal to its lowest level since May 1999, when it first emerged as a dotcom play.

Shares of PCCW have tumbled more than 88 percent in the past year on concern about its hefty debt level and a loss of confidence by some investors in the company's founder and chairman Richard Li.

"Market reaction is way irrational last week and now," said Goldman Sachs' Jiang.

"But it's okay. The company pulled the deal and the financing plan. There are no outstanding bonds. Let the market think what it wants. When the market stabilizes, PCCW will find a better window."