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Hutchison to spin off telecom units

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CIOL Bureau
New Update

Tony Munroe and Daisy Ku



HONG KONG: Hutchison Whampoa Ltd, under pressure to offset 3G mobile startup losses, said it would spin off its emerging market telecom businesses for listing in Hong Kong.

The conglomerate headed by Asia's richest businessman Li Ka-shing said it folded its fixed-line and mobile units in Hong Kong, as well as its mobile holdings in India, Thailand, Israel, Macau, Sri Lanka, Ghana and Paraguay into a new firm and filed an application for an initial public offering.



Hutchison, famous for its avid asset swapping, said it would retain control of the new firm, Hutchison Telecommunications International Ltd, after its listing.



"The objective, is to add further focus to the group's telecommunications activities in growth markets by aggregating its extensive assets and financial, operational and management resources in a single vehicle," the company said in a statement.



Hutchison has about five million mobile subscribers in fast-growing India, two million each in Israel and Hong Kong, and about 500,000 in Thailand. Based on previous company statements, the networks to be spun off have roughly 10 million mobile users.



It did not say how much the new company would be worth, but one analyst at a European bank who declined to be named estimated that the firm's telecom holdings in the three key markets of Hong Kong, Israel and India had an enterprise value of about HK$31 billion (US$3.97 billion).



He estimated that the new firm might seek to raise about US$1 billion in an IPO.



The new listing vehicle would not include the company's 3G mobile assets in western Europe, and would also exclude its telecom business in Australia.



Hutchison had previously said it was planning an IPO for its 49 percent-owned mobile phone businesses in India and the company said on Monday the formation of the new company to be listed in Hong Kong would not prevent such a deal from going forward.



Citigroup recently valued Hutchison's Indian mobile holdings at US$1.6 billion.



Hutchison's emerging markets telecom holdings include stakes in Partner Communications in Israel and Hutchison Essar in India. The company recently launched a 3G service in Hong Kong and also has a 3G license in Israel but has not yet started the service there.



In January, Hutchison sold its Hong Kong fixed line unit to associated firm Vanda Systems & Communications, for US$910 million in stock. That firm will also be included in the listing vehicle.



UNDER 3G PRESSURE



Hutchison is the world's biggest operator of container ports and also has vast holdings in retail, property and energy, but it is the firm's US$22 billion investment in the commercially unproven 3G that worries investors.



The firm launched the service in the key Italy and UK markets last year, and earlier this month revealed deeper-than-expected 3G losses. Citigroup recently predicted that Hutchison would lose US$2.6 billion on 3G this year before interest and taxes.



Its 2003 3G loss was US$2.3 billion before interest and tax.



Investors have widely expected the company would seek to offset 3G losses with exceptional gains through assets trades.



"The salient concern is still the 3G business," said Ben Kwong, associate director at KGI Asia. "Even though they'll spin off the assets and realize some exceptional gains, its just a one-off. 3G is still a long-term development."



Hutchison has hired investment bank Goldman Sachs as its financial advisor on the deal.



Given that it has already filed a listing application in Hong Kong, the IPO could proceed within two to six months, although Hong Kong's bout of IPO mania has cooled in recent weeks.



On Monday, rival mid-tier Hong Kong mobile carrier China Resources Peoples Telephone Co Ltd priced its US$157 million IPO at the bottom of an indicative range and its underwriter UBS ended up buying about eight percent of the shares in an offer that generated weak market demand.



And the 75-year-old Li's vaunted investing acumen was unable to rescue the debut earlier this month of his Chinese media firm TOM Online. TOM Online shares fell on their first day and now trade 26.7 percent below their IPO price.



Hutchison shares fell 1.79 percent on Monday to close at HK$55.00. For more than three years, the stock has been weighed down by the firm's 3G exposure. Li's property flagship Cheung Kong (Holdings) owns nearly half of Hutchison.



© Reuters

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