PCCW launches massive $2.5B bond offer

Led by Richard Li, PCCW is undergoing a massive debt restructuring

By Staff and wire reports

HONG KONG, China -- Embattled Internet and telecom group PCCW has launched a $2.5 billion bond issue.

The market expects the bonds to be offered at between 260 and 300 basis points over comparable maturity U.S. Treasuries.

The mammoth deal, set to be the biggest single offering from a corporate in Asia outside Japan, is part of a huge debt restructuring at the heavily indebted telco.

"You can't ignore this issue. It's a very big size. You will see reasonable participation from institutional and retail investors," Stephen Cheng, head of credit analysis at UBS Warburg, told Reuters.

VIDEO CNN's Andrew Stevens speak to an analyst about the implications of PCCW's bond offerings. Play video (QuickTime, Real or Windows Media)

Fan Jiang, head of fixed income research at Goldman Sachs, told CNN that the 260 to 300 basis point range is a reasonable pricing for the issue.

"I think the range is about right though the range is fairly wide," he said.

The BBB-rated bonds are being issued by PCCW's Hong Kong Telecom fixed line phone services unit, but no indicative pricing has been given.

Healthy appetite

Analysts expect a healthy appetite for the bond issue, especially from buyers in Hong Kong and Greater China who are attracted to PCCW's even cash flow.

"The cash flow is predictable and steady (though) the growth potential is quite limited," said Fan Jiang.

"But we're really focused on the bond, and not the equity. So people are focusing on the quality of the cash flow rather than the growth of the cash flow."

Headed by 34-year-old tycoon Richard Li, PCCW has been battered by the change in sentiment towards the Internet since last year's audacious all-stock buy-out of Hong Kong Telecom (HKT) from Britain's Cable & Wireless for $28.5 billion.

PCCW's stock price has shed 85 percent of its value in the last year.

Last week, PCCW unveiled a revamp of its consumer Internet strategy in a bid to win back investor confidence.

The company said it plans to cap consumer Internet investments at $190 million and leverage existing assets in Hong Kong, with any regional expansion going forward only under strict financial limits.

PCCW also said it would axe 340 jobs in its Internet services unit to reduce costs.

Reuters contributed to this report.