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Monday, 9 July, 2001, 14:14 GMT 15:14 UK
Giant bond issue launched in HK
Richard Li, PCCW executive chairman
PCCW chairman Richard Li's brief visit to last week's internet strategy announcement puzzled investors
Hong Kong telecoms company Pacific Century CyberWorks has held the first in a series of meetings to drum up investor support for one of the biggest corporate bond issues ever launched by an Asian company outside Japan.

PCCW is to issue bonds worth $2.5bn which will mature on 10 year and 30 year timeframes.

PCCW bought Cable & Wireless Hong Kong Telecom (C&W HKT) for $28.5bn last year, giving it a monopoly of fixed line local services.

The company said it would use the bond issue to refinance the $4.7bn in bank loans it took out to buy C&W HKT.

The refinancing doubles the time PCCW has to repay most of its existing debts.

The bulk of PCCW's debts are set to mature in between four and seven years, but the bond issue will extend this to 10 years, according to Nigel Coe of Deutsche Bank in Hong Kong.

C&W HKT offices
PCCW made its mark when it swallowed C&W HKT
PCCW needs funds to expand its operations and has little prospect of raising them on the stock market as its share price has fallen more than 80% in the last 12 months, dropping from a peak of HK$28.50 early last year to HK$2.25 on Monday.

Internet expansion reined in

Last week the company unveiled plans to scale back its internet expansion, cutting back on investment, narrowing its focus from the world to Hong Kong and slashing 340 jobs.

PCCW said it would trim back investment in the internet operations from a planned $200m a year to $190m this year, and a mere $100m over the next two years.

This represents a big switch from last year, when PCCW said it would spend $1.5bn over five years, mostly developing its Network of the World web access and interactive digital video viewing service.

Instead, it will launch in July, an internet service provider aimed at the local market and paid for by subscription.

A limited form of the service is currently available in China, but will this will be abandoned, according to Mr Coe.

We understand what the market needs today is financial prudence

Richard Li, executive chairman, PCCW
PCCW will drop plans to produce original content and sign deals with local content providers.

"It seems they are basically shutting down the content production side of things," said Mr Coe.

The job cuts, equal to 40% of PCCW's internet workforce, are expected to save $16m, the company said.

Financial prudence

"We understand what the market needs today is financial prudence," said PCCW chairman Richard Li.

"We want to introduce services where we already have market leadership from our existing assets."

PCCW now intends to focus on boosting revenues from Hong Kong's broadband internet market.

Also high on its agenda is its local interactive television (iTV) service, where it hopes it can more than double the number of subscribers to 500,000 in 2003 from 230,000 at the end of last year.

The new, more modest strategy plays on the company's strengths, namely its existing asset base, but will face strong competition from cable channels, analysts said.

Customers may also be reluctant to pay for internet content, said Ben Tam of Dao Heng Securities.

However, prospects for the bond issue seem bright enough as it is likely to get "reasonable participation from institutional and retail investors", according to Stephen Cheng, head of credit analysis at UBS Warburg.

Mr Li said he hoped to see a separate listing of the internet unit at the end of 2003, though no further details were given.

PCCW reported a loss of $886m for 2000.

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