Smart move, given red ink, limited growth prospects: Analysts

HONG KONG: Hutchison Whampoa, the blue chip conglomerate controlled by Hong Kong billionaire and investment guru Li Ka-shing, has offered HK$4.23 billion in cash to buy out its telecom unit Hutchison Telecommunications International Ltd (HTIL).

The parent company, which currently owns 60 percent of the unit, is offering to buy the remaining 40 percent shares at HK$2.2 each, a joint statement issued by both companies Friday said.

The offer price represents a 37 percent premium to the stock's last price of HK$1.61 before trading was suspended on January 4, and a 21 percent premium over the net asset value per HTIL share of approximately HK$1.81 as of end-June 2009.

Upon a successful buyout, Hutchison Whampoa will own 100 percent of the unit, whose shares will be de-listed.

The offer has so far drawn a positive response in general.

"The offer price is fair. Minority shareholders should be satisfied with the offer," said Eugene Law, research head at Celestial Asia Securities Holdings Ltd.

"They should accept the offer, considering the fact that there won't be significant room for growth in the company's business (in the foreseeable future)," the analyst added.

HTIL has been left with relatively-small operations in Thailand, Sri Lanka, Indonesia, and Vietnam after it spun off or sold its most profitable operations in recent years.

The company sold its entire 51.3 percent stake in Partner Communications Company Ltd, a leading telecom operator in Israel, for about HK$10.7 billion in October 2009. It spun off its Hong Kong and Macao operations for a separate listing in the Hong Kong Stock Exchange in May last year. Before that, it had also sold its operation in India.

BOCI Research Limited also believes that minority shareholders should accept the buyout offer, noting that HTIL's remaining operations are still in the red.

A telecom analyst at BOCI Research, who prefers not to be identified, also believes that there isn't much room for HTIL to grow its business in the short- to long-term.

"The odds of HTIL's acquiring new (telecom) assets are not high, as there isn't any attractive asset up for sale now in the market," the analyst said.

While the privatization offer provides minority shareholders an opportunity to realize the value of their investment, analysts believe the move will also benefit Hutchison Whampoa.

"The parent company could use the cash amassed by HTIL in other operations after privatizing the unit," Celestial Asia Securities's Law said.

Nomura International also sees a similar reason for Hutchison Whampoa's buyout move, saying that the parent may wish to have a more "effective" grip on the unit's cash.

HTIL has been sitting on a cache of about HK$8.0 billion cash after it sold its entire 51.3 percent stake in Partner Communications Company Ltd, a leading telecom operator in Israel, for about HK$10.7 billion in October 2009.

Despite general approval from the investment community, the idea of privatizing listed companies met with opposition from shareholders in the past. Li Ka-shing's son, Richard Li, had wanted to privatize PCCW before, but the move was voted down by minority shareholders last year.

(HK Edition 01/09/2010 page2)