PCCW's planned spinoff to pave way for Li's media
By Lee Chyen Yee and Alison Leung
HONG KONG (Reuters) - Hong Kong's PCCW Ltd <0008.HK> got the green light from shareholders on Wednesday for its plan to spin off and list its multi-billion dollar telecoms unit, paving the way for owner Richard Li to create the media empire he has long yearned for.
But whether Li can become a media tycoon like 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, analysts and bankers say.
Li, the younger son of Hong Kong tycoon Li Ka-shing, is expected to expand his television business in Hong Kong and China in what's left of PCCW, which consists of pay-TV operator now TV, an information technology solutions business and some property assets.
"For 'now TV', we are trying to enhance our production capabilities because we would like to pursue developments in overseas markets."
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 license, which will help boost its TV advertising revenue, analysts and bankers say.
"Richard Li has always been more interested in media than the telecoms business," said a banker in Hong Kong.
"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." The banker declined to be identified because he is not authorized to talk to the media.
There is no guarantee PCCW will launch the spinoff in the near future.
PCCW will retain control of the trust by keeping an interest of 55-70 percent.
Analysts say the market capitalization target set for the trust seems challenging under current market conditions.
"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," Macquarie analyst Lisa Soh said.
PCCW shares ended down 0.34 percent on Wednesday, taking the company's market value to HK$21 billion, substantially lower than the projected market value of its telecoms asset. That means PCCW will likely wait before launching the trust spinoff.
PCCW has said that if it managed to raise more than HK$7.8 billion, it would use the proceeds to expand its business, apart from paying down the telecoms unit's mountain of debt of more than HK$36 billion.
"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. PPstream is China's largest video online operator.
Li 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 2010, Li joined hands with China's influential Caijing magazine to launch a newswire service called Cai Business Indepth (CBID). But that flopped within months of launching due to poor market response and high operating costs.
In 2000, Li beat Singapore Telecommunications Ltd <STEL.SI> in a deal to buy Cable & Wireless HKT for more than $30 billion, aiming to create a telecoms powerhouse.
However, the highly-leveraged deal proved too big for Li with the telecoms unit, leading to the decision to spin off and list the unit in the form of trust.
The telecoms business generates steady cash flow but its growth potential is limited as the market is matured.
In Hong Kong, Li owns the Chinese-language Hong Kong Economic Journal and English website www.ejinsight.com, although he will probably be unable to inject the assets 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 license to provide free-to-air television services in Hong Kong, which will challenge the dominance of Television Broadcasts Ltd (TVB) <0511.HK>.
"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 licenses, 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 <0762.HK>.
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. <MQG.AX>.
($1 = 7.782 Hong Kong dollars)
(Editing by Chris Lewis and Vinu Pilakkott)