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Investors leave call of faith unanswered

Investors leave call of faith unanswered
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First Published: Thu, Feb 15 2007. 11 39 PM IST
Updated: Thu, Feb 15 2007. 11 39 PM IST
 Investors don’t seem to trust Hutchison Telecom.
The emerging markets telecoms operator’s shares have dropped 13% since last week’s auction for its largest asset, the Indian Hutchison Essar.
The negative response, which brought the shares below the pre-auction level, would make sense if the $11.1billion (Rs48,840 crore) price-tag was disappointing. But it wasn’t, by any standard.
The group is set to realize a whopping $9.6 billion capital gain. That’s a big number for Hutchison Telecom (HTIL), which has a $10 billion market capitalization. At more than 17 times this year’s Ebitda (earnings before interest, taxes, depreciation and amortization), Hutchison Essar achieved a 20% premium to the multiple at which rival Bharti trades. And it went for about 20% more than investors had thought it was worth, according to JP Morgan’s estimates.
So the sharp drop is a vote of no-confidence in the company, just under 50% owned by Hutchison Whampoa, and its chairman, Canning Fok. The problem: they don’t believe HTIL will use the money well.
It may give some of the money back to shareholders, but it has only stated its intention to invest in what’s left of its empire—operations in the Far East, Israel and Sri Lanka.
But HTIL’s remaining operations don’t look such good bets. Most of their value lies in the slow-growing Israeli mobile business, Partner. What’s more, Fok has his eye on new markets. That may ring alarm bells with investors, given the difficulty Hutchison Whampoa is having getting its 3G mobile network, 3, into profit.
That struggle has not only hurt HTIL. It has also blotted Whampoa’s copybook. Investors have kept the conglomerate at its 25% discount to its sum of its parts—twice its long-term average—even after the profitable India sale.
HTIL has a chance to start getting its outside investors back onside next week when it spells out its plans. The group will need to tell a good story.
Once lost, trust is hard to rebuild.
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First Published: Thu, Feb 15 2007. 11 39 PM IST
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