PCCW Limited:Announces acquisition of CSL; potential ratings pressure arises

74tiger

PCCW Limited:Announces acquisition of CSL; potential ratings pressure arises

来自：MACD论坛(bbs.shudaoyoufang.com) 作者：74tiger 浏览：2024 回复：0

PCCW and its subsidiary Hong Kong Trust (HKT) announced that HKT hasconditionally agreed to buy CSL-New World, another HK mobile operator forHK$18.9 billion (US$2.4 billion) in cash. CSL is 76% owned by TelstraAustralia and remaining by New World Development. PCCW and HKT wouldalso need shareholders’ and regulatory approvals for this transaction. Based on our back-of-the-envelope calculations, we do see higher leveragepro-forma for the transaction. PCCW-HKT guides that HKT intends torefinance acquisition loan facility with longer term financing that could be amix of long term debt, equity (in form of rights issue) eventually. Moody’s already guides that leverage is high for HKT’s ratings. Hence, wesee some ratings risk as acquisition increases pro-forma leverage, althougheventual downgrade scenario would also depend on whether higher leverageis not enough to offset benefits of stronger market position and other expectedsynergies mentioned below. We are yet to get comment from rating agencies. We expect HKT’s pro-forma net leverage (net debt/EBITDA) to rise from2.8x for FY13E to ~4x if entirely debt funded and slightly lower levels (buthigher than current 2.8x) should it be funded through mix of debt and equity.This is based on CSL’s HK$2.1 billion EBITDA disclosure (actual numbersmay slightly vary due to accounting differences) in FY13 and assuming noadditional net debt from CSL. PCCW ‘23s (z+202) is quoted ~60-65bps inside other low-BBB Hong Kongcredits, we see some downside risk to the bonds from the current levels dueto near term uncertainty on ratings. As a low-BBB credit, we think PCCW‘23s could eventually settle around z+230-240bp range and would add spreaddiscount of ~50bps for the parent, PCCW ‘22s (z+280) bonds. We think anegative outlook/watch could be likely before being resolved depending oneventual financing and synergies benefits details. We would however look tolong PCCW ‘23s again if it widens to mid-200s levels, even in downgradescenario as we think it would be an improving credit in the medium term. We do see medium term benefits of the transaction for PCCW-HKT. HKT’smobile segment was the only one where it does not have leading market share.With this transaction, its pro-forma market share is guided to rise to marketleading31% in Hong Kong, as per Bloomberg report. PCCW-HKT would thushave dominant market share in all its mobile, TV, broadband and fixed linesegments, with PCCW commanding ~60-70% in latter three. In addition, HKT offers to return additional 2x5Mhz of 3G spectrum andnot participate in the 3G auctions expected in late 2014, which would enable itcost savings from auctions and lower opex. We also expect competitivelandscape to continue to get more benign in Hong Kong as the sectorconsolidates to lesser number of players. Separately, the transaction would also imply HK$4.4 billion cash for NewWorld, which is positive for the credit although we remain bit cautious on HKdevelopers for 2014, given the expected sector slowdown in sales.