October 12, 2011 / 3:46 AM / 6 years ago

PCCW telecoms spinoff paves way for Li to pursue media dreams

HONG KONG, Oct 12 (Reuters) - Hong Kong’s PCCW Ltd will likely get the green light from shareholders on Wednesday for its plan to spin off and list its multi-billion dollar telecommunications unit, paving the way for owner Richard Li to create the media empire he has long yearned for.

But whether Li can become Hong Kong’s Rupert Murdoch remains unclear given the financial constraints of PCCW, stiff competition in the media industry, and regulations in Hong Kong and China that could tie his hands, industry executives say.

Li, the younger son of Hong Kong’s best-known tycoon Li Ka-shing, is expected to expand his television business in Hong Kong and China in what’s left of PCCW Ltd, which consists of pay-TV operator Now TV, a solutions business and some property assets.

He will be keen to delve into media-related business in China and expand the company’s Hong Kong footprint after PCCW obtains a free-to-air TV licence, which will help boost its TV advertising revenue, industry executives say.

“Richard Li has always been more interested in media than the telecoms business,” said a banker in Hong Kong on condition of anonymity. “In his mind, it’s a valuable business, but whether the public will look at it the same way will depend on how much cash he can generate for the business.”

Although born with a silver spoon in his mouth, Li wants to be a self-made man rather than rely on daddy’s pocket.

Li’s life has been nothing short of conventional. He worked shifts at McDonalds, according to some media reports, and has fathered three children with his ex-girlfriend, former Hong Kong movie star Isabella Leong.

His career has had its share of ups and downs.

He first ventured into the media business in the 1990s and made a huge splash in one of his early deals.

The crew-cut, bespectacled executive started the satellite network Star TV in the mid-1980s which he sold to media mogul Murdoch for $950 million in 1995, just before turning 30. He used the money to set up a company that eventually became PCCW.

In 2000, Li beat Singapore Telecommunications Ltd in a deal to buy Cable & Wireless HKT for more than $30 billion, aiming to create a telecoms powerhouse. However the deal proved too big for Li to swallow with the telecoms unit bleeding money for years.

Hence Li’s decision to spin off and list the unit in the form of HKT Trust.

Last month, PCCW issued a prospectus on the spinoff plan, aiming to raise HK$6.8 billion to HK$10 billion, assuming a minimum market capitalisation of HK$28.6 billion ($3.68 billion). PCCW will retain control of the trust by keeping an interest of 55-70 percent.

Analysts say the high valuation and minimum market capitalisation restriction could be a stumbling block in the upcoming initial public offering of units in the trust.

“I don’t think the vote (by shareholders) is a problem,” said Macquarie analyst Lisa Soh. “What I think is a problem is the market cap restriction, because the current share price of PCCW alone would indicate that it’s not going to happen.”

PCCW shares ended up nearly 4 percent on Tuesday, taking the company’s market value to HK$21 billion, substantially lower than the projected value of its telecoms asset. Daiwa Capital Markets valued the remainder PCCW at about HK$23.5 billion if it offers a 30 percent stake.

Under current volatile market conditions, PCCW will likely wait before setting a date for HKT Trust’s listing.

If PCCW managed to raise more than HK$7.8 billion, it would likely use the proceeds to expand its business, apart from paying off the telecoms unit’s mountain of debt, the company said.

“Li’s focus will be on mainland China because he already has invested in PPstream, so I think Li is looking at the Hong Kong and China markets,” said Daiwa Capital Markets analyst Alan Kam.

In Hong Kong, Li owns the Chinese-language Hong Kong Economic Journal, although he will probably be unable to inject the asset into PCCW due to local media regulations.

Therefore TV will be Li’s focus.

PCCW is among the few TV operators that have already applied for a licence to provide free-to-air television services in Hong Kong, which will challenge the dominance of Television Broadcasts Ltd (TVB) .

“Now TV is still very small and the free TV market is about HK$4 billion in terms of advertising revenue, and it’s dominated by TVB,” said Standard Chartered analyst Steven Liu. “If three more operators get licences, competition will be fierce.”

There could be more acquisitions in store, although Li will have to make a good sales pitch to convince PCCW shareholders, such as China Unicom (Hong Kong) Ltd . In 2006 China Netcom, now owned by China Unicom, objected to Li’s plan to sell PCCW’s core assets to U.S. buyout firm TPG and Australia’s Macquarie Group Ltd. . ($1 = 7.782 Hong Kong dollars) (Editing by Chris Lewis)

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