Still waiting for PCCW refinancing

The market awaits details of PCCW''s refinancing as the company misses its Friday deadline. Rumours abound.

Rumours surrounding the status of the $4.7 billion refinancing of PCCW's bridging loan have dominated Hong Kong's capital markets on Monday. The company has missed a self-imposed deadline of last Friday to secure the new round of financing and investors are starting to worry that the refinancing might be more expensive than first thought. PCCW shares traded down HK$0.35 - or almost 6% - to close at HK$5.90 on Monday.

PCCW originally sent out a request for proposals with some fairly aggressive requirements. PCCW wants the facility split into three tranches of three year, five year and seven year maturities with bullet repayment of each tranche. It is offering an all in spread in the low 80 basis point (bp) level over Libor for the entire amount which is to be $4.7 billion - $500 million more than PCCW needs to refinance.

However, the banks that PCCW originally contacted have apparently gone back to the company with much more stringent terms. Bankers close to the deal say that while some banks might be willing to lend at the 80bp level, they will need to have some very strong covenants to offset the weakness of the credit.

The main question now is which banks will make up the lead arranger group. This group will underwrite the entire amount before selling down through a general syndication. Sources close to the deal suggest that five banks have agreed to the loan in principle, and are just ironing out the details. These banks are HSBC, Bank of China, Barclays Capital, Standard Chartered and Fuji Bank.

Which banks?

However, reports on Dow Jones suggest that HSBC and Bank of China are not in the group. Officials at HSBC, Bank of China and PCCW could not be contacted by for this article. However, PCCW did put out a statement over the weekend.

Francis Yuen, Deputy Chairman, Pacific Century CyberWorks said: "We are very encouraged by the positive response from the banking community. As a result, we are considering expanding the lead arrangement group from four banks to five or six banks to accomodate global participation and ensure a successful syndication. The company expects to appoint the lead arrangement group next week." 

One syndicate head at an international bank in Hong Kong expressed the opinion that Chase would also form part of the lead arranger group. "Chase missed out on the first deal, so I think they would be all over this deal like a cheap suit," he said. "They need to do this deal if they are to get the slightest chance of doing any of the more structured transactions that PCCW needs to do further down the track."

Complicating the refinancing of the bridging loan is PCCW's insistence on doing a $2 billion syndicated project finance loan for its new IP backbone joint venture with Telstra at the same time as the refinancing. This deal will be secured solely on the IP backbone assets and will not have any recourse to either PCCW or Telstra. Analysts predict that the outcome of this loan will have strong implications for the credit of the parent and could affect the refinancing.

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