Pacific Century stock up 10% after deal to sell insurance arm

BY A happy coincidence, Pacific Century Regional Developments, the Singapore-listed firm controlled by Hong Kong tycoon Richard Li, halted share trading just before lunch on Monday.

The counter avoided the worst of the week's market carnage because Pacific Century was about to announce the sale of its insurance arm.

And when Pacific Century resumed trading yesterday, it was one of the few bright spots for punch-drunk investors.

As other counters struggled to find their feet, Pacific Century soared as much as 15 per cent yesterday, before closing 3.5 cents, or 10.3 per cent higher, at 37.5 cents.

The turnover of 7.4 million shares was well above the three-month daily average of one million.

Pacific Century's move to sell its 47.06 per cent stake in its Hong Kong-listed insurance arm seems to have pleased investors.

This was in contrast to a controversial HK$9.2 billion (S$1.8 billion) deal to sell a 22.64 per cent stake in PCCW last year which drew flak from investors.

That deal was seen as a ploy to allow Mr Li to get rid of an unloved asset which he had failed to offload to private equity investors, after opposition from China. But the latest deal is seen as a win-win transaction for the firm and investors.

The buyer, Fortis Insurance International, will pay HK$8.18 for each Pacific Century Insurance (PCI) share, a hefty 41.5 per cent premium over its last traded price of HK$5.78 on Monday. This valued Pacific Century's stake at HK$3.14 billion.

Pacific Century said the proposed sale would have given it a net profit of $365.5 million, if the sale had been completed on Jan 1 last year.

And while its shareholders are already salivating at the prospects of the firm rejuvenating itself with the sales proceeds and possibly rewarding them with a special dividend, many believe that the biggest winner is Mr Li himself.

One analyst said the deal restores Mr Li's reputation as a savvy dealmaker, after a fruitless year when many of his various corporate moves had ended in tears.

'The PCI deal recalled Richard Li's flair as a consummate deal-maker when he made his mark selling Star TV to Rupert Murdoch in 1995,' he said.

And the sale will give clarity to the prospects of Pacific Century itself. 'Pacific Century currently trades at a big discount to its net asset value because investors don't know what they are buying into - a telco or an insurance company,' said the analyst.

But they might come around to viewing the firm as a cheap way of gaining entry into PCCW, after PCI is sold, as PCCW is well-positioned to exploit new services by telcos and cable operators because of its mix of telephone, TV and broadband services.

A back-of-the-envelope calculation shows that, as of yesterday, Pacific Century's investments in PCCW and PCI may be worth HK$10.31 billion - or 65 Singapore cents per share.

In other words, even after its sharp gains yesterday, Pacific Century could still be trading at a steep discount to the firm's break-up value - given that its closing share price was 37.5 cents.

engyeow@sph.com.sg





CONSUMMATE SKILLS



The deal restores Mr Li's reputation as a savvy deal-maker, after a fruitless year when many of his various corporate moves had ended in tears.