TELECOM FEVER SUPPORTED THE MARKET

Weekly Review

HSI Weekly Movement	Weekly Market Statistics

The Hang Seng Index edged up 0.5% this week mainly on the strength of the telecommunications sector. Dow’s fall on the previous Friday set a weak tone for the local market at the start of this week. The results of HSBC and Hang Seng Bank also did little to inspire buying interest among investors as attention were drawn to the bidding war for Cable & Wireless HKT. Pacific Century CyberWorks’ rival, SingTel, received a shot in the arm from Rupert Murdoch’s News Corp during the final minute of the negotiation. However, PCCW proved to be the eventual winner of the local telecom giant but the price paid was lower than what the market had expected. Investors promptly sold down CWHKT and PCCW upon the news and the market was dragged down accordingly. Following the PCCW-HKT merger deal, the market focus switched to Tom.com, which made a spectacular debut on the GEM board. During the week investors were buying China Telecom on expectation of more mergers and acquisitions within the telecom sector after PCCW-HKT deal. SmarTone also advanced considerably as investors expect the stock to receive higher valuation with the forthcoming IPO of SUNDAY Communications. Apart from a few selected counters, most of the HSI members lost ground on concern of rising interest rates. Losses were more pronounced in traditional rate sensitive counters such as properties and banks.

The U.S. unemployment rate rebounded off its low of 4% in January to 4.1% last month while the 43,000 new jobs created were much lower than expected. The figures suggested the U.S. economy is slowing, which reduces the pressure on the Fed to raise interest rate. Given the Dow’s 2% jump on Friday following the release of those numbers, the local market is expected to react positively early next week. Banks and properties may rebound on easing rate hike fear. The results announcements of several blue chip companies should also draw investors’ attention. On the IPO front, the commencement of the public subscription to SUNDAY and SUNeVision may start another round of frenzy towards high-tech and telecom stocks given the success of Tom.com.

* HK & China Gas also declared a 1-for-10 bonus share issue.

• According to the Census and Statistics Department, the volume of domestic exports rose 8.7% y-o-y in December 1999 but the value of domestic exports fell 1.3% y-o-y. Re-exports volume jumped 18.1% y-o-y but fell 0.5% y-o-y in value terms. On the other hand, imports grew 17.8% y-o-y by volume and 0.7% y-o-y by value.

• British Cable & Wireless (C&W) has agreed to merge its 54%-owned Cable & Wireless HKT [0008] with Pacific Century CyberWorks [1186]. Under the proposal, shareholders of CWHKT are given two alternatives. In the Share Alternative, CWHKT’s shareholders are offered 1.1 share of PCCW in exchange for one share of CWHKT. This option values CWHKT at US$38.1 billion (HK$296.3 billion). In the Combination Alternative, CWHKT shareholders are offered 0.7116 share of PCCW plus US$0.929 (HK$7.23) cash in exchange for one share of CWHKT. This option values CWHKT at US$35.9 billion (HK$279.6 billion). The merged company, PCCW-HKT, will be 37% owned by PCCW, 11.2%-20.9% owned by C&W. China Telecom will have about 5% interest, the same as the combined stake of CMGI and Intel. PCCW will finance the cash portion of the merger with a syndicated loan arranged by BOCI Capital, HSBC Investment Bank Asia, BNP (Hong Kong) and Barclays Capital Asia.

　

• Sun Hung Kai Properties [0016] won a 146,067 sf residential site at the Peak for HK$490 million, representing an accommodation value (AV) of HK$8,350 psf, in this week’s government land auction. SHKP plans to invest HK$1 billion to develop 20 luxurious houses at the site. Meanwhile, Asia Standard International [0129] snapped up the 9,481 sf residential site in Shau Kei Wan for HK$170 million, or an AV of HK$1,992 psf. The third site, a 36.382 sf residential site in Cheung Sha on Lantau Island was sold to a private developer, Tack Hsin Holdings, for HK$17.2 million, or HK$1,182 psf.

　

• Hutchison Whampoa’s [0013] U.S. mobile investment, VoiceStream Wireless Corp (VWC), has completed its merger with Omnipoint. The merged group is also close to concluding another merger with Aerial Communications which would make it the largest GSM operator in the U.S. with coverage of a population of 210 million in 23 of the 25 largest markets in the U.S.. Hutchison’s initial 30% stake in VWC amounted to US$1 billion in July last year. It later injected US$957 million into VWC to support its merger with Omnipoint.

　

• Hutchison [0013] has bought US$150 million of convertible notes in a Canadian telecommunications company, Telesystem International Wireless (TIW), with an option to buy another US$50 million worth of notes. The 10-year notes carry a coupon of 7.75%. If all the entire US$200 million notes are converted, Hutchison will hold a 6.2% stake in TIW. TIW said the proceeds will be used to develop the third generation universal mobile telephony services (UMTS) in Britain, for which the company is now applying for a license.

　

• Hutchison Whampoa [0013] will team up with DLJDirect, the Internet broking arm of US investment bank Donaldson, Lufkin and Jenrette, to provide online stock trading in Asia. The 50/50 joint venture, which is expected to be launched by the third quarter of this year, will allow clients to trade local and US stocks through the Internet. Both companies will invest US$20 million into the venture, which is expected to breakeven before its third year.

　

• Legend [0992] has formed an alliance with Pacific Century CyberWorks [1186] to provide broadband Internet service in the mainland. Under the deal, Legend will sell computers which allow users to connect to PCCW’s Network of the World (NOW) with a touch of a button. The co-branded Legend-NOW personal computers with cable modems will be sold through Legend’s 2,000 distributors across the country.

　

• Pacific Century CyberWorks[1186] has formed a new venture capital partnership with CMGI and Hicks, Muse, Tate & Furst of the U.S. to invest in Internet firms in Asia, Europe and Latin America. Each of the three partners will each inject up to US$500 million into the joint venture, called AtVentures Global Partners. The JV will make investments in four areas of the Internet including programming content, community, commerce and Web software and services. Financial terms of the JV have yet to be finalised. Separately, PCCW and SoftNet Systems of the U.S. have formed a 50/50 joint venture, Pacific Century SoftNet, to help cable operators to upgrade their facilities to support broadband services. PCCW acquired five million shares of SoftNet Systems in January 2000.

　

• CITIC Pacific [0267] has launched its first Internet web site, CarNet. The new web site will provide information on new cars, trends on the automobile industry as well as provide a platform for the sale of new and used cars. The company will launch a CarNet web site targeted at the mainland within three months. In January, CITIC formed CITIC Pacific Communications as its information and technology flagship.

　

• First Pacific [0142] subsidiaries, Metro Pacific and PT Darya Varia, reported improved performances in 1999. Metro Pacific saw earnings increase of more than seven times to Pesos 2.4 billion in 1999 while PT Darya Varia recorded a Rp 1.8 billion profit compared with a Rp 112.8 billion loss in 1998. Metro Pacific’s earnings were boosted by gains from the sale of assets, specifically, Smart Communications (partial), Metro Bottled Water, and Metrolab Industries and a reversal of provisions by Fort Bonifacio. Meanwhile, PT Darya Varia’s net profits improved in the absence of foreign exchange losses (1998: Rp147.9 billion) which largely attributed to the net loss suffered in 1998.

　

• Cheung Kong Infrastructure [1038]’s cement unit, Green Island Cement, has acquired a 65% stake in a Canadian asphalt company, Polyphalt, for C$10 million. Polyphalt mainly develops novel polymer modified asphalt products and the acquisition will complement Green Island cement’s existing range of products.

• Tom.com [8001] jumped 335.4% on its trading debut. The stock reached an intraday high of HK$9.70 but closed lower at HK$7.75. The company offered 42.8 million shares for sale at HK$1.78 each in its IPO, which was 669 times oversubscribed.

　

• Apparel manufacturer Carry Wealth Holdings is raising a net of HK$78 million by offering 90 million new shares (72 million shares for placement and 18 million shares for IPO) at HK$1.0 each. The issue price represents a pro-forma fully diluted P/E of 3.45 times. Dealing of shares is scheduled to begin on 13th March.

　

• Furniture manufacturer and trader Decca Holdings plans to raise $76 million through its IPO of 50 million shares at $1.52 each. The issue price represents a pro-forma fully diluted P/E of 5 times. Ttrading is scheduled to commence on 10th March.

　

• GEM listing candidate Hongkong.com has set its issue price at $1.88, the top end of its initial price range of $1.6-$1.88 per share. The Hong Kong-based portal placed 640 million shares to institutional investors, which was believed to have received over 40 times subscription.

　

• GEM listing candidate SUNeVision Holdings, the technology arm of SHK Properties [0016], plans to raise up to HK$3.11 billion through the issue of 300 million at HK$8.38 to HK$10.38 each. The placement portion accounts for 90% of the issue with public portion accounting for the remaining 10%. Sources said the placement portion was more than 10 times oversubscribed. SUNeVision’s projected market capitalisation of HK$16.7 billion to HK$20 billion would be approximately 3.3 times to 4 times the size of Tom.com [8001] at time of its listing. Public subscription period runs from 6th to 9th March while trading is scheduled to start on 17th March.

　

• Sources said mobile phone operator SUNDAY Communications has raised the issue price of its forthcoming IPO. The issue price range for Hong Kong shares was raised from HK$3.1-$3.6 to HK$3.43-$3.82 per share while that for American Depository Share was increased from US$11.95-$13.38 to US$13.11-$14.57. The company plans to raise about US$300 million by issuing 690 million new shares to be listed in Hong Kong and on the NASDAQ. Sources said the placement portion was more than 10 times oversubscribed.

Summary of US News

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