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PCCW returns to bond market with USD500 million offering

The Hong Kong-based telecoms operator PCCW returned to the international bond market as it priced on March 5 a US$500 million issue that generated sufficient demand.

The Reg S 10-year deal was priced at 98.785% with a coupon of 3.75% to offer a yield of 3.898%. This was equivalent to a spread of 200bp over the US treasuries, which was at the tight end of the final price guidance of between 200bp and 205bp, and well inside the initial guidance of 220bp area. The bonds tightened further in the secondary market and were quoted at 196/194.

The bonds were issued through a special purpose vehicle PCCW-HKT Capital No 5 and guaranteed by HKT Group Holdings and Hong Kong Telecommunications (HKT), the premier telecoms service provider in the territory, in which PCCW holds a majority interest.

The deal attracted an order book of US$4.3 billion from 290 accounts with 71% of the paper sold in Asia and 29% in Europe. Fund and asset managers were the biggest buyers with 66%, followed by banks with 15%, insurance and public sector 10% and private banks 9%.

DBS Bank, HSBC and Standard Chartered are the joint coordinating banks as well as joint lead managers, along with ANZ and Morgan Stanley.

Standard & Poor’s (S&P), which assigned a BBB rating to the new bonds, says it expects HKT to use a substantial portion of the net proceeds to refinance its existing US$500 million bonds due 2013 and the rest for general corporate purposes.

It notes the rating on HKT reflects the company’s strong position in Hong Kong’s fixed line telecoms and broadband markets and its well-established network infrastructure. It also reflects HKT’s stable and recurring operating cash flows, which S&P says will remain solid because of its strong market position.

PCCW previously tapped the US dollar bond market in April 2012, raising US$300 million for 10 years at a yield of 5.91%. The bonds, though, traded down in the immediate aftermarket.

PCCW’s latest bond offering came after the company reported strong financial results for 2012 on the back of notable growth across its core business segments – media, solutions and telecoms. The core revenue for the year rose 7% to over HK$24.13 billion with the core Ebitda up 6% to HK$7.68 billion. Profit attributable to equity holders – after accounting for about 37% non-controlling interest in HKT – increased modestly to HK$1.60 billion.

06 Mar 2013 by Chito Santiago