PCCW places shares in property group

Telecom operator places shares at 40% discount to Net Asset Value.

PCCW took another step in the re-organization of its property assets on Thursday night with the sale of 237 million shares in Dong Fang Gas, which is being re-named Pacific Century Premium Development.

The placement was required to get the company's freefloat up to the 25% regulatory minimum and follows an announcement of the spin-off of PCCW's property assets into Dong Fang Gas in March. Pre sale, PCCW owned 93% of Dong Fang Gas and post sale will own 80%. The company is currently seeking a waiver from the Stock Exchange of Hong for the remaining 5%, which it hopes to sell over time.

Citigroup was lead manager of the placement, which was marketed at HK$2.65 to HK$2.80 per share and priced at HK$2.65, raising HK$628 million ($81 million). There is no greenshoe.

Books were closed once they were covered one-and-a-quarter times and stock was placed with about 50 investors, almost all of whom already own PCCW stock. Geographically the book is said to have split about 50% Asia and 50% Europe.

The indicative range was set after looking at the current trading range of Hong Kong property stocks and benchmarking it towards the bottom end of second tier stocks, which trade in a 30% to 50% discount range to NAV.

According to research compiled by CLSA, the placement price represents a discount of 40% to fully diluted NAV of HK$4.45 per share on a 10-for-1 post consolidation basis.

In March, PCCW sold PCCW Infrastructure to Dong Fang Gas in exchange for new shares and bonds exchangeable into Dong Fang giving it a 93% stake in the entity. Dong Fang sold it 1.65 billion new shares at HK$1.80, a 63% discount to the stock's last traded price of HK$4.80 on a 10-for-1 basis. It also sold HK$3.59 billion in exchangeable bonds that will enlarge the company's share capital from 1.764.5 billion to 2.956.7 billion.

PCCW can now book the gain between HK$1.80 and HK$2.65, netting it HK$201.45 million ($25.9 million). The re-organization was driven by a desire to reduce debt at the parent and unlock the value of the property assets.

According to CLSA, Pacific Century Premium Development's fully diluted NAV stands at HK$13.15 billion. It valued: PCCW Tower at HK$3.057 billion; Pacific Century Place (Beijing) at HK$3.79 billion; Paramount Building at HK$22.8 million; Queen's Road Telephone Exchange at HK$156 million; Residence Bel-Air at HK$2.27 billion; a telephone exchange landbank at HK$3.67 billion and other assets as HK$180 million.

The new shares begin trading on May 11 when the consolidation becomes effective.

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