PCCW refinances again

Like moths to a flame, bankers are dazzled by another cost cutting exercise

A 15-strong bank group responded to PCCW-HKT's request for a Hong Kong dollar fundraising. A further five banks confirmed their participation this week to join the 10 who had already committed.

The bank group comprises ABN AMRO Bank, BNP Paribas, Commerzbank, JPMorgan, DBS Bank, Hang Seng Bank, Bayerische Landesbank, ANZ, Bank of China, Bank of Communications, Bank of East Asia, Bank of Nova Scotia, Credit Agricole Indosuez, UFJ Bank and Mizuho Corporate Bank (Asia). Each house provided a HK$400m ticket, pushing the amount up to HK$6 billion ($780 million) from the originally requested HK$4 billion ($520 million).

Market observers were surprised at the names that appeared in the bank list as well as raising eyebrows on those that were absent. JPMorgan's inclusion fuelled speculation that the US house - not normally inclined to join such tightly priced vanilla loans - may be looking to secure other business off the back of this transaction.

Banks were rumoured to be pitching for a US dollar trade earlier in the week and sources claim that participants in this loan have boosted their chances of winning any mandate. However there is some debate as to whether a deal will actually emerge.

Notable omissions include HSBC who has been involved in every deal since PCCW acquired Hong Kong Telecom back in 2001. Bankers suggested that this might indicate that the borrower was looking to build new relationships with other banks.

The margin is linked to the borrower's credit ratings and range between a ceiling of 39.5bp and a floor of 22.5bp. At the current level of Baa2/BBB the transaction pays 27.5bp over Hibor with a management fee of 65bp for HK$400m takes.

At 45bp all-in pricing on this financing is substantially inside the HK$2.8 billion ($360 million) revolver and term loan completed in August. Banks joining that deal were offered an all-in rumoured to be nearer 60bp for seven years.

A handful of loan syndicators recycled the old complaint of low pricing, this view was dismissed by most observers who claimed that the appetite for this credit at this price is still strong. This is in spite of the borrower's apparent failings and the fact that it has come to the debt and loan markets four times in 2003 under various guises, raising some $1.7 billion.

Some compared the credit to the wafer thin pricing offered on the recent HK$3billion ($390 million) Hongkong Electric deal which, at 28bp all-in for five year money, was one of the most tightly priced financings of the year. In this light, the pricing is seen as positively generous, especially given that this is viewed as the most creditworthy arm of the PCCW group.

Many bankers have just got on with it as they look to find ways to make their excess liquidity work. Analysts point to the response of 15 banks compared with just eight in August as the mark of a successful transaction.

The borrower is in discussions with the banks over an increase in the facility size and signing should take place before year end.

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