Hutchison Telecom Receives Privatisation Offer from Parent

Hong Kong-based conglomerate Hutchison Whampoa has offered to take HTIL private at HK$2.20 a share, representing a premium of 33.3% to the telecoms unit's pre-suspension price of HK$1.65 on Monday (4 January). Hutchison Whampoa currently owns 60.4% of HTIL. Following the sale by HTIL’s subsidiaries of their respective interests in the India and Israel operations, and the spin-off of its Hong Kong and Macau businesses, HTIL now has operations in four countries—Thailand, Sri Lanka, Indonesia, and Vietnam. However, none of these is among the top three operators in their respective markets and all of these operations generate negative cash flow. Hutchison Whampoa said that it "believes that HTIL will continue to need significant capital to broaden and expand its businesses and accordingly, anticipates that all the current cash in the HTIL Group will be retained to fund its businesses, particularly in Indonesia and Vietnam resulting in no surplus cash being available for dividends". The company added that it "is of the view that in the short and medium terms HTIL faces potential uncertain financial performance with the associated risk of significant share price volatility, thus making it less suited to remain a publicly listed entity". Hutchison Whampoa also noted that HTIL’s market capitalisation has fallen from its high of HK$95.6 billion in January 2007 to its current level of HK$7.9 billion and concurrently, liquidity and trading in both HTIL’s shares have greatly declined.

Outlook and Implications

• Remaining Assets Unprofitable: The privatisation move does not come as a surprise as a combination of high network investment requirements for HTIL's remaining telecoms operations, lack of surplus cash for dividends, and low share trading volume have made it difficult for the company to remain as a publicly-listed firm. In 2007, HTIL sold its Indian operation, the largest ever of its business portfolio, to U.K.-based Vodafone Group. In May last year, the company spun off its profitable Hong Kong and Macau operations for a separate listing (see Asia-Pacific: 5 March 2009: Hutchison Telecom 2008 Operating Profit Turns Positive, Company to Spin Off Hong Kong, Macau Operations). In October, HITL sold its 51.3% stake in the Israeli mobile operator, Partner Communications, to Scailex Corp (see Asia-Pacific - Israel: 13 August 2009: Hutchison Telecom H1 EBITDA Down 38.9% Y/Y, Will Divest from Partner Communications in Israel). HITL is also in the process of divesting from its business in Thailand. HTIL had said earlier last year it was in talks to sell its 66% stake in Hutchison CAT Wireless MultiMedia to CAT Telecom, its partner in the venture. In December, CAT Telecom approved in principle a plan to take over HTIL’s operation in the country.
• Greater Control over Remaining Businesses: HTIL had earlier placed its strategic focus on developing its remaining operations, particularly the start-up businesses in Indonesia and Sri Lanka. The majority of its capital investment recently had been channelled into the network roll-out in the two countries. The Indonesian operation in September last year agreed US$422-million worth of orders and a service contract with Huawei Technologies for the expansion of its network (see Indonesia: 14 September 2009: Hutchison Indonesian Unit Signs US$422-mil. Mobile Network Expansion Deal with Huawei). The Vietnamese operation aimed to take the number of base stations to 3,000 by the end of 2009. After the proposed privatisation, Hutchison Whampoa would have greater control over how to manage or restructure HTIL's remaining businesses without the pressures associated with being a publicly-listed company.