China Netcom Group, the parent firm of Hong Kong-listed China Netcom, planned to pay around US$1 billion, or a 20 percent premium, for new shares in PCCW Ltd., sources familiar with the situation said Wednesday.

A source close to the deal said the parent firm of China Netcom will pay more than HK$5.80 a share — roughly a 20 percent premium to the closing price Tuesday — for 20 percent of PCCW’s enlarged share capital.

PCCW, Hong Kong’s dominant fixed-line phone company, said early last month that it was in talks on the possible sale of a 20 percent stake to the parent of China Netcom, which is keen to build its business in southern China and overseas.

“The deal will be sealed by the end of next week, if not this week,” said a source close to the deal.

Analysts said the deal would help PCCW pay part of its US$5 billion debts and save on interest payments, but the deal would be earnings dilutive by around 14 percent to existing shareholders.

“It’s a good premium, but still earnings dilutive,” BOC International analyst Allen Ng said.

“The deal may help PCCW’s share price, but it doesn’t change the company. It’s not a deal that will benefit shareholders directly,” Tat Au Yeung, managing director of Apex Capital Management, said.

(Shenzhen Daily January 6, 2005)