It will be ironic if the actions of Telecom New Zealand end up being the difference between Hutchison Telecommunications Australia remaining with a solid rump of independent shareholders, or an almost wholly-owned subsidiary of its Hong Kong parent, Hutchison Whampoa.
Anyone with shares in HTA and wondering about whether to avail themselves of the offer of convertible prefs announced on Monday, should watch what TEL does.
TEL has a 19.9 per cent stake in HTA subsidiary Hutchison 3G Australia (H3GA) which is underwater. It was taken up when it did a deal with HTA on the new generation of digital mobile communications.
It’s though this subsidiary will also be recapitalised in the wake of the recapitalisation of HTA.
Analysts yesterday estimated that it would cost TEL $300 million to maintain its stake which would in effect be a vote in the future of HTA and 3G mobile in Australia (for AAPT, TEL’s Australian arm)
The $2.85 billion recap was announced Monday and pitched as a move to enable HTA pay down debt and speed up its push toward profitability. The company said debt would be slashed by well over $2 billion to $1.1 billion and interest costs would be cut by hundreds of millions of dollars a year.
But the cynics say it’s nothing but a very expensive takeover without an actual bid being made. With HTA shares trading at 18c yesterday, there’s no incentive for existing non-HTA associated shareholders to take up the 21c prefs in the issue.
The company has warned that if no one takes up the prefs then the Hong Kong parent’s stake will rise from 57 per cent to well over 97 per cent.
Analysts suggested yesterday in client notes that the between TNZ and H3G on technology access remains unaffected by the potential dilution. That would mean TEL wouldn’t have to tip in any more money and it would be diluted.
As TEL’s own financial position is becoming stretched at home because of regulatory change, and in AustraliaAAPT still struggling, so investors probably wouldn’t like to see $300 million tipped into the bottomless pit that has been HTA for quite a while.
Hutchison’s offer is being underwritten by the Hong Kong parent, Hutchison Whampoa, which owns 57.7 per cent of the Australian subsidiary.
Under the terms of an agreement TEL and HTA apparently recently signed, Telecom had to match funding to H3GA on a pro rata basis to any funding made by Hutchison.
That means if Hutchison used money raised through the pref issue to pay down debt in H3GA, Telecom would have to pay up to avoid being diluted.
So that’s why it will pay to watch what TEL does.
It will, mind you, have money to spare when it sells its directories business shortly so the $300 million would not be such a stretch.
