Kim Eng on 20 June 2012
Background: Pacific Century Regional Developments Limited (PCRD) has interests in telecommunications and media, financial services, property and infrastructure investment and development. It is 75.8%-owned by the Pacific Century Group, a private vehicle of Hong Kong tycoon Richard Li. The company’s main asset is a 21.3% stake in Hong Kong-listed PCCW Limited (8 HK).
Recent corporate exercises: Pacific Century Group has been buying shares on the open market since May this year, following PCCW’s successful spin-off of HKT Trust late last year. This may be a hint that corporate restructuring may be in the works.
Deeply undervalued on paper. PCRD has no other significant asset or earnings stream other than its stake in PCCW, making it effectively a holding vehicle. On paper, the deep value is obvious; this stake is worth SGD747m vs its own current market capitalisation of SGD539m. Its balance sheet carries no debt, with another source of value being SGD104m in financial assets. All this would imply almost a 40% discount market value for PCRD.
What ‘Superman’ said. In the first clear statement of intent with regard to succession plans, Li Ka Shing, dubbed “Superman” by the Hong Kong media for his ability to generate returns, announced this year that elder son Victor will take over Cheung Kong Holdings and Hutchinson Whampoa, while he will now bankroll younger son Richard’s future ambitions, which will be centred on PCCW. Restructuring scenarios could entail Richard Li either taking PCRD private to tighten his control over PCCW, or using PCRD as his
alternative vehicle for expansion.
HKT spin-off implies even more value. Having failed to privatise/sell off PCCW several times, Richard Li appears to have finally found an acceptable solution by spinning off PCCW’s traditional telecom assets into HKT Trust and using the cash proceeds/ dividends to fund PCCW’s more exciting media and IT solutions businesses. This implies deep value even on the PCCW level .
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