PCRD shareholders weigh up premium

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Minority shareholders in Richard Li’s Singapore-listed holding company will be given a rare opportunity to make or break months of delicate financial engineering by some of the region’s most powerful businessmen and bankers on Thursday.

At issue for investors in Pacific Century Regional Developments – the company through which Mr Li holds his controlling 23 per cent stake in Hong Kong telecommunications operator PCCW – is whether to accept HK$6 a share for a company that last closed at HK$5.18.

For some, the 16 per cent premium is good value, especially for a company that has not traded at the price on offer since 2004.

“If PCRD shareholders just want to wash their hands of PCCW, it’s a good price,” said Ross O’Brien, managing director of Intercedent, a Hong Kong-based telecoms consultancy.

Others are less certain. They cite doubts about how PCRD’s windfall from the HK$9.2bn ($1.2bn) sale of its stake in PCCW to a consortium backed by Mr Li’s father, tycoon Li Ka-shing, will be distributed, if at all. That decision ultimately lies with PCRD’s board and Richard Li, who controls 75 per cent of the company but, because of his father’s involvement, has been banned by Singapore’s stock exchange from voting on the PCCW transaction.

“It isn’t only about whether the sale proceeds will be distributed but what happens to PCRD afterwards,” said Yuen Chung Kwong, a professor of computer science at the National University of Singapore and a PCRD shareholder, who notes that PCCW is its main asset.

Whether those sorts of concerns will cause the deal to fall through remains unclear. But PCCW was yesterday forced to ask for the suspension of its shares in Hong Kong to deny a report that PCRD shareholders were set to reject the deal.

There is also confusion over what exactly Mr Li, the chairman of PCCW and PCRD, would like to happen.

In a November 15 letter to Hong Kong’s legislature, he wrote that the deal “represents good value for [PCRD shareholders]”. But less than a week later he was quoted in a Hong Kong newspaper as saying he was “unsatisfied” with his father’s involvement – which negated Richard’s ability to vote and increased completion risk – and would be “happy” if PCRD shareholders rejected it.

That PCRD’s minority shareholders are in a position to wreck the plans of Richard, his father and Francis Leung, the Hong Kong investment banker who is fronting the Li Ka-shing backed consortium, is testament to the deal’s sloppiness.

TPG-Newbridge, the US buy-out fund, proposed buying out PCRD’s minority shareholders and taking the company private in February, a deal that could have facilitated Richard Li’s exit from PCCW.

Macquarie Bank countered in June with a $7bn offer to buy Hong Kong-listed PCCW’s core assets – a move that TPG-Newbridge was forced to match. The offers would have paid all PCCW shareholders as much as HK$6.30 a share.

Objections by PCCW’s second largest shareholder, state-owned China Netcom, forced Newbridge and Macquarie’s withdrawals.

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