HONG KONG: PCCW stake sale faces defeat

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HONG KONG: PCCW stake sale faces defeat
Richard Li may get his wish -- sources say Singapore firm has enough proxy votes to sink deal

South China Morning Post
Saturday, November 25, 2006

By Frederick Yeung

Richard Li Tzar-kai's Singapore-listed company has sufficient votes from minority shareholders to reject a proposal to sell its 23 per cent stake in PCCW, sources familiar with the situation said yesterday.

Minority shareholders in Pacific Century Regional Developments (PCRD) will hold a ballot on the sale on Thursday.

Richard Li, PCCW's chairman, had favoured selling the stake to a consortium led by investment banker Francis Leung Pak-to. But this week he urged shareholders to vote against selling the PCCW stake, claiming that the involvement of his father, Li Ka-shing, made the deal too politicised and murky.

"PCRD told PCCW senior management yesterday that PCRD has secured sufficient proxies to vote against [the sale of the stake]," a source close to the deal said.

PCRD's minority shareholders yesterday rejected an earlier plan by PCRD chairman Richard Li, who holds 75 per cent of its shares, to buy the remaining PCRD shares he does not own. The "no" vote was required before the shareholders could decide whether to sell the stake in PCCW, Hong Kong's biggest telecommunications firm.

The first sign that the deal was becoming politicised came in June when China Network Communications, the mainland's second-largest fixed-line operator, which holds 20 per cent of PCCW, voiced opposition to the sale of PCCW's assets to foreigners.

Mr Leung then stepped in, offering to buy PCRD's 23 per cent PCCW stake. Controversy was fuelled when it emerged Li Ka-shing provided financing to Mr Leung for the deposit on the purchase.

This month Mr Leung said Li Ka-shing would take a 12 per cent stake in PCCW for HK$4.8 billion through his two foundations. Spain's Telefonica would pay HK$3.3 billion for 8 per cent of PCCW and Mr Leung would invest HK$1.2 billion for the remaining 2.65 per cent.

Richard Li declined to comment yesterday.

A banker close to the sale said Richard Li's statement this week on the PCCW stake sale may breach Hong Kong regulations on share manipulation. The remarks contradicted his statement in July that he would pay HK$1.3 billion in special dividends to PCCW shareholders after the sale. That might have affected the share price and could lead to an investigation by the Securities and Futures Commission, the banker said.

Richard Li could face more scrutiny from broadcasting regulators too. Legislators this week pressed the government to further investigate whether his purchase in August of a half share in newspaper the Hong Kong Economic Journal violated media cross-ownership rules. PCCW subsidiary PCCW Media, the operator of its NOW Broadband service, holds a television licence.

Mr Li's most recent statement added to the confusion facing PCRD's minority shareholders. The company's independent financial adviser, Genesis Capital, has recommended they vote for the deal.

Market watchers said there was no reason for PCRD minority shareholders to oppose the sale of the PCCW stake, as the offer's premium was attractive. Even so, some minority shareholders at yesterday's meeting urged a higher offer price.

The Singapore Exchange has barred Richard Li from voting on the sale.

Date Posted: 11/25/2006