Li Ka-shing (李
Telefonica SA, Europe's second-largest phone company, said on Sunday that it would buy 8 percent of PCCW for 323 million euros(US$415 million) and combine its stake with the 20 percent held by China Network Communications Group (中國網通集團), China's second-largest fixed-line company.
The participation of Li and Telefonica -- which owns 5 percent of China Netcom's Hong Kong-listed unit -- means former Citigroup Inc banker Francis Leung (梁伯韜) can complete his purchase of Richard Li's 23 percent controlling stake in PCCW. China Netcom and Telefonica will have management control of PCCW with the 28 percent stake.
"This should open up more opportunities in the mainland for PCCW," said Kenny Tang, research director at Tung Tai Securities Ltd in Hong Kong. "It's different from when they only had a minority interest."
PCCW's pay-television and mobile-phone ventures with China Netcom have faltered since they were set up after the Chinese company paid US$1 billion for a 20 percent stake in PCCW last year.
PCCW, China Netcom and Telefonica have signed an agreement to develop PCCW's business, including Internet-based television, call-center services and high-speed "third generation" cellular service, should Netcom receive a license, people familiar with the deal said last week.
Shares of PCCW rose 0.5 percent to HK$5.05 at 3:20pm in Hong Kong. The stock has gained 5.8 percent this year, compared with a 27 percent advance in the benchmark Hang Seng Index.
The purchases by the Li Ka-shing foundation and Madrid-based Telefonica "will remove all the uncertainties surrounding PCCW in the past few months, and both shareholders and management should be happy to see this," Tang said.
The Li Ka Shing Foundation Ltd will buy 10 percent of PCCW shares for HK$6 each from Leung and the Li Ka Shing (Canada) Foundation will buy 2 percent at the same price, Leung said in a statement in Hong Kong newspapers yesterday. Both charitable foundations are controlled by Li.
Li Ka-shing is also providing some of the financing Leung will use to purchase the 2.7 percent stake in PCCW that he will retain, the statement said.
The financing from his father for Leung's purchase means Li will have sold out of PCCW, whose shares have dropped more than 90 percent from their peak in 2000, when he bought control from the UK's Cable & Wireless Plc.
"The father finally came out to rescue his son so he can concentrate on something else," Francis Lun, general manager at Fulbright Securities Ltd, said in a televised interview yesterday. "Li Ka-shing is not the big winner. Netcom is the winner."
Beijing-based China Netcom blocked Li's previous attempt this year to sell PCCW's phone and media assets at a higher price on the grounds that the units should stay in local hands.
PCCW provides services to 68 percent of Hong Kong's fixed-line phones. This transaction avoids those concerns.
China Netcom's venture with Telefonica will be the largest shareholder in the company with a 28 percent stake. Telefonica has the right to swap its 8 percent stake in PCCW for more shares in China Netcom Group Corp (Hong Kong) Ltd, China Netcom's listed unit, of which it already owns 5 percent.