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HK 'Superboy', China's IT 'Prince' talk super deal
By Carrie Chan and Shadow Lau

HONG KONG - Pacific Century Cyberworks Limited (PCCW), the largest telecommunications provider in Hong Kong, is currently negotiating with China's second-largest fixed-line telecommunications operator on selling its fixed-line services, Asia Times Online has learned. So far, the negotiation is focused on the selling price, and various details. But because a director of the Chinese telecommunication operation is Jiang Mianheng, son of Jiang Zemin, China's former president and currently chairman of the Central Military Commission, the negotiation is considered to be politically sensitive.

The prospective buyer is China Network Communication Group Corporation (CNC), according to informed sources, speaking on condition of anonymity. And on Tuesday, PCCW released a statement confirming that it is involved in confidential discussions with CNC "in relation to strategic and business cooperation opportunities".

According to the PCCW Limited statement, these strategic and business cooperation opportunities include, but are not limited to, joint ventures relating to certain assets of the company, which may include moves by CNC to take up equity interest in PCCW-HKT Telephone Limited, a wholly-owned subsidiary of PCCW Limited.

The discussions are continuing, but no definitive agreement or letter of intent has been signed by the parties, and there can be no assurance that any such agreement or letter will be signed, according to the statement.

Less familiar to Hong Kong investors, CNC is anything but negligible. As the second-biggest fixed-line telecommunication network runner in China, it plans to be listed on both the Hong Kong and New York Stock Exchanges in July, when it aims to get a pool between US$1.5 billion and $2 billion. Further, it has managed to invite onto its board of directors Jiang Mianheng, the eldest son of Jiang Zemin.

CNC is striving to "become a first-rate telecommunication enterprise in Asia, and then in the whole world", chief executive officer Zhang Chunjiang has said. On January 15, CNC set up a subsidiary in Shanghai, China Netcom Southern Communications Co Ltd. Henceforth, the fixed-line magnate has remapped its target market and made southern China the priority in its corporate strategic development. Shanghai, in particular, will be the major focus of the new-born subsidiary.

"Undoubtedly, China Netcom has made a handsome business record in fixed telecommunication service. Given that its fixed-line network enjoys a high coverage of those developed areas, the company should have a stable revenue. Besides, it has no investment under heavy debt, so its finance should be a sound one," according to Xu Guoxi, a securities analyst. He works for ICEA (Industrial Commercial East Asia), a joint venture investment bank founded in 1998 by the Industrial and Commercial Bank of China and the Bank of East Asia.

Moreover, CNC has built up a heavy weight managerial echelon with Jiang Mianheng on the board. As a protege of Jiang Zemin, he boasts a far-flung network of political contacts. In 1977, he graduated from Shanghai's prestigious Fudan University, and in 1982, obtained his master's degree from the Institute of Semiconductors of the Chinese Academy of Sciences. He received his doctorate in electrical engineering from Drexel University in the United States. Based on these credentials, he has been dubbed the "prince of information technology".

It is believed that one of Asia's richest men, Li Ka-shing - the father of PCCW chairman Richard Li and chairman of Cheung Kong Group, a Hong Kong-based multinational conglomerate - has maintained a close association with former president Jiang. Therefore, though speculation abounds, the focus is on the interplay between offspring of the two powers - Richard Li and Jiang Mianheng.

Recently, JP Morgan Chase and Citigroup, which have been optimistic about the prospects of PCCW, have respectively rated its stock price downward. However, Standard & Poor's has raisedCCW in terms of investment rating from "hold" to "buy or outperform".

Though Asia Times Online has made inquiries about the fixed-line deal of PCCW and China Mobile, neither responded before publication. On May 12, China Telecom disavowed any cooperation plan with PCCW.

Some history
In March 2000, when PCCW acquired Hong Kong Telecom or HKT (originally Hong Kong Telephone Company, founded in 1925) in Asia's largest corporate takeover, a HK$300 billion ($8.5 billion) deal, its chairman, Richard Li was dubbed "Superboy" by the local media.

The acquisition vaulted PCCW from a small 1990s dot-com company to one of the largest corporations in Hong Kong. The blockbuster deal saw plenty of twists and turns. Initially, HKT owner Cable & Wireless entertained a bid from Singapore Telecom, chaired by Lee Hsien Yang, son of Singapore's former premier Lee Kuan Yew. Lee Hsien Yang's ambition successfully gained tremendous support from the media tycoon Rupert Murdoch.

But there was local dispute about a Singapore company owning the largest Hong Kong telephone system. With the backup of Hong Kong and Shanghai Banking Corporation (HSBC) and the Bank of China (Hong Kong), PCCW entered the scene and managed to outbid the Singaporean rival.

After the victory, the English name of PCCW was changed from "Pacific Century Cyberworks Limited" to "PCCW Limited" on August 9, 2002. According to Li, PCCW's future position was to become the world's largest broadband service provider. In Li's vision, television programs and Internet services would be offered to PC users via satellites.

A good market player, Li even sparked a frenzied buying spree for Hong Kong technology stocks. An HSBC report predicted that PCCW would hold 21 percent of the global TV program market by 2005; the famous investment bank Lehman Brothers unleashed its restraint, saying that PCCW's annual revenue in broadband service would reach $19 billion.

However, all these promising reports soon went into the dustbin as local euphoria surrounding HKT's takeover waned and global technology and telecom shares tanked. In April 2001, PCCW's market capitalization shrank astonishingly by 85 percent, from $64 billion to $8.6 billion, and instead of coming out ahead as a vibrant stock, PCCW plunged into a debt abyss of $4.2 billion, eventually exceeding its stock market value. In 2003 its stock price shed 95 percent, falling to HK$0.88 (US 1 cent) from its 2000 peak of HK$28.5.

In order to turn the corner, Li endeavored to stop the snowballing debt, which later proved not "fundamental" to the crux of the issues. Disappointed, Li resigned as PCCW Limited's chief executive officer on July 25, 2003, but remained on as chairman and executive director. So far, PCCW stocks are anything but the apple of investors' eyes. But the China deal, if it goes through, could change a lot.

(Copyright 2004 Asia Times Online Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)


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