PCCW telecoms unit may eye Singapore listing after HK rejection

The Hong Kong stock exchange has rejected PCCW’s (0008.HK) plan to spin off its telecommunications business and list it as a business trust, a decision the group is appealing.

The news could force PCCW, chaired by media tycoon Richard Li, to consider listing the telecoms unit as a business trust in Singapore, where such structures are allowed.

“I’m sure the Singapore Exchange would welcome PCCW to list as a business trust if they fail to be successful in Hong Kong," said Raymond Tong, a partner in law firm Clifford Chance’s capital markets practice in Singapore. 

 

In a filing to the Hong Kong exchange on Wednesday, PCCW said it would appeal the committee’s decision to block its plans for the city’s first listed business trust.

 

“We would trust that the appeal can be held expeditiously,” a PCCW spokeswoman, who did not want to be identified, told Reuters by telephone.

 

“We don’t wish to go into the details while we are going through the formal appeal process. We believe we have strong ground to appeal and therefore we are exercising that right,” she added.

 

Shares in the company fell 2.2%, underperforming a 0.5% fall in the benchmark Hang Seng Index <.HSI>.

 

The company said the rejection was made under the Hong Kong Exchange’s guidance note for companies looking to spin off and separately list one of their existing businesses, but did not elaborate.

 

Henry Law, a spokesman for the Hong Kong Exchange, said they were unable to comment on individual listing applications.

 

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The move marks a further blow to Richard Li’s numerous attempts to reorganise the telecoms business. He first tried to sell the telecom and media assets in 2006 but was blocked by state-owned China Netcom, a 20% stakeholder in the company, which said it was worried about the phone infrastructure falling into foreign hands.

 

Then in April 2009 Li’s move to try and privatise the phone company was blocked by Hong Kong’s Court of Appeal after Hong Kong’s Securities and Futures Commission intervened saying there was evidence that the shareholder vote had been manipulated by the company.

 

In March this year PCCW said it was in discussions with the Hong Kong Exchange (0388.HK) and the city’s Securities and Futures Commission over the possible listing of its telecommunications business in the form of a business trust. 

 

The move was seen as an attempt to put the thumbscrews on Hong Kong’s regulators to allow publicly listed business trusts following an outcry by some investors and politicians when Richard Li’s father, Li Ka-Shing, listed the ports business of Hutchison Whampoa (0013.HK) as a trust in rival financial centre Singapore last month.

 

Business trusts allow companies to pay dividends out of their underlying cash flow rather than profits and so tend to be used by firms in the infrastructure sector that have fairly steady revenue streams.

 

The trusts are popular with companies because it allows them to raise cash without relinquishing control. In a business-trust model, the trust sells units to investors, but control of the business is left with the trustee manager, who is usually an affiliate of the company establishing the trust.

 

However, opponents of business trusts point out that this removes a degree of accountability to the trust’s unit holders. If unit holders want to remove the trustee manager, at least 75% of them would need to vote in favour of the move.

 

“We can see no good reason for Hong Kong to emulate Singapore business trusts,” Hong Kong-based activist shareholder David Webb wrote on his website.

 

“There’s no tax reason for doing so and there are governance reasons why we shouldn’t,” he added.

 

PCCW, which aims to retain a controlling stake in the business on a long-term basis, said the proceeds from the spin-off and listing would be used to strengthen its balance sheet and for investment in future growth.

 

PCCW shares have fallen 8.7% so far this year versus a 3.7% gain in the Hang Seng Index.