Mr Richard Li and PCCW - Episode 3

engine was running while the driver was yakking away over his coffee

What is the deal?
Mr Richard Li and China Network Communications Group intend to take PCCW private by buying any remaining shares they do not own at HK$4.20 a share. Total purchase consideration - HK$14.9 billion.

PCCW, Hong Kong's biggest phone carrier, will pay a cash dividend of about HK$16.9 - 17.4 billion to Mr Li's Pacific Century Regional Development (PCRD) and China Network within 20 days after the purchase date.

That is about HK$2.7 billion more to be received by Mr Li's and China Network against the buyout price tag.

Couple of hitches

• The intended dividend payout is 13 times more than 2007's.
• 2007's dividend payout is about 74% of 2007's profit.
• PCCW's net debt as at June 2008 - HK$23.2 billion.
• So how does PCCW intend to find the money to pay the intended dividend? PCCW intends to borrow at a relatively high interest from 20 banks to pay it.

Sharholding structure of PCCW before the buyout:-

• Mr Richard Li (in his own name) - 28.3%
• PCRD Singapore - 22.5%
• China Network - 20%

Shareholding structure of PCCW after the intended buyout:-

• Mr Richard Li and PCRD - 66%
• China Network - 34%

So what would be the impact to PCRD's minority shareholders?

Background info
In 2006, Mr Richard Li tried to take PCCW out of PCRD by proposing buyers in the form of companies and parties deemed related to Mr Li Senior and a ex-Citibanker Mr Francis Leung. http://investingwithedgar.blogspot.com/2006/11/richard-li-his-dad-and-pccw.html

EVA and Keppel Corp

Quiet - my 4.30pm picnic lunch on Friday last

What is EVA?
Economic value-added (EVA) is after-tax operating profit minus the dollar cost of capital employed. It is measured in dollar figures, and not a percentage rate of return.

EVA = after-tax operating profit - [weighted average cost of capital X total capital employed]

EVA is positive as long as the residual income is positive. EVA is used to avoid situation where an investment that is profitable for the Group is given a miss by the responsible division, whose performance is measured on ROI.

Keppel Corporation is a key user of EVA. I quote the paragraph from their latest financial report.

"We have been reporting positive EVA since 2004, achieving a record $604 million in 2007.

This positive EVA was due mainly to the improvement in Net Operating Profit After Tax (NOPAT), an efficient capital structure, stringent investment criteria and strong cashflow.

The improvement in EVA by $181 million was attributed largely to higher NOPAT partially offset by higher Capital Charge. NOPAT increased by $216 million due to an increase in after-tax profit of $172 million. Capital Charge increased by $35 million due to a higher Weighted Average Cost of Capital (WACC) partially offset by lower EVA Capital. WACC increased from 6.5% to 6.99% attributed largely to a higher unlevered beta. Average EVA Capital decreased by $132 million from $9.08 billion to $8.95 billion.

In all, total EVA growth was $405 million over the last two years."

Retiree sues UOB

my regular mutton fix

Plaintiff - Customer - Mr Go - age 69 - lost $350,000 over 2 transactions worth $2.75mio. Said to be an ex-property developer and experienced investor in equity.

As reported in ST yesterday, Mr Go sue on the basis of misrepresentation, negligence and breach of duty under the Financial Advisers Act on Nov 3.

Defendent 1 - UOB Bank
Defendent 2 - Mr Yeo Beng Hee - age 28 - so called Relationship Manager

While the Court has yet to decide on who is right or wrong, the rosy world of high finance for this young 28-year old is now in nightmare.. But will he survive to continue in his banking career?

Should the banks be more stringent in the quality and experience of people they put in the frontline advising clients on matters worth a lot of monies?? Quantum of funds they themselves may not even have and thus had no personal experience handling.

While I know everyone got to start somewhere, I will still say quality and experience level of people at the frontline must prevail. It should not be based just on passing a few exams and they happily go around Boat Quay telling people they are BANKERS. Sigh!!