PCCW confirmed on Thursday that China Network Communications Group Corporation (China Netcom Group) will buy 20 percent of its shares for US$1 billion in cash.

"It will be the largest investment ever made by a mainland State-owned enterprise in a Hong Kong telecoms company," said Jack So, deputy chairman and group managing director of PCCW.

PCCW is controlled by Richard Li, the son of Asia's richest man, Li Ka-shing. He will see his stake shrink to about 25.5 percent from 31 percent after the acquisition. But he will remain the chairman and largest shareholder.

"This transaction will lay the foundations for PCCW to participate in the fast growing telecommunications market in China. At the same time, the capital injection will further strengthen our financial fundamentals," said Li in a statement.

China Netcom Group, the parent of Hong Kong and New York-listed China Netcom, is expected to buy 1.34 billion new shares in PCCW for HK$5.9 apiece (75 US cents), a 25.5 percent premium on Wednesday's closing price of HK$4.7 (60 US cents).

Shares in PCCW were suspended ahead of the market opening in Hong Kong yesterday at their own request. Till then, there had been a 5 percent reduction in the share price over the last three months, and a 15 percent decline in the past year.

Alexander Arena, chief financial officer of PCCW, said proceeds from the acquisition will partly go to reducing the company's debt from US$3.8 billion to US$2.8 billion, and the transaction is expected to be completed in late March subject to shareholders' approval.

In addition, PCCW agreed to earmark over 60 percent of the proceeds, or HK$5 billion (US$641.03 million) for inland-related investments and set up a PRC Business Development Committee.

PCCW is a prominent player in HK's fixed-line networks, broadband TV and property development. Its broadband service has more than 400,000 subscribers and is currently operating more than 40 channels.

Norman Zhang, telecoms analyst of Tai Fook securities research, said this was good news for all involved, adding that China Netcom might focus more on PCCW's broadband services in the future.

He added that the development of broadband services on the mainland remains in its infancy compared with rest of the world, so this could be a new growth area for China Netcom.

(China Daily January 21, 2005)