China Network Communications (China Netcom) is to become the single largest shareholder in Hong Kong’s dominant telco PCCW, in a controversial move, which has political implications. Under the deal, which was announced at the weekend, Spain’s Telefónica will acquire an 8% stake in PCCW for EUR323 million (USD415 million), while Li Ka-shing, Asia’s richest man, will buy 12% for HKD4.85 billion (USD623 million). Telefónica and Li Ka-shing paid HKD6 per share, although the Spanish company has secured a 10% discount if PCCW’s share price underperforms over the next ten months. The two stakes are part of the 23% holding that investment banker Francis Leung agreed to buy in July for HKD9.2 billion. Mr Leung will hold the outstanding 2.65% in a personal capacity. The Spanish group said it would join its stake in PCCW with the near-20% stake owned by Beijing-based Netcom, in a special purpose vehicle. The combined 28% holding is below the 30% level designated by the Hong Kong authorities that would trigger a formal takeover offer.
The arrangement is likely to create political waves in Hong Kong, where legislators have voiced concerns about a Chinese state-owned company exercising control over the core telecoms network. Netcom, meanwhile, has pledged that it will not seek control PCCW or its board, while Mr Leung told the Financial Times: ‘The next chairman of PCCW will be decided by the board.’ Last year, Telefonica bought a 5% stake in China Netcom’s overseas listed subsidiary. It said that, after two years, it would be able to swap its stake in PCCW for shares in China Netcom. Telefónica, Netcom and PCCW also signed an agreement to jointly develop telecoms and media businesses.