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Published by: Asia Case Research Centre, The University of Hong Kong
Published in: 2002
Length: 31 pages

Abstract

In March and April 2000, a series of unusual decisions, involving billions of US dollars, were made by some of the biggest international companies and banks operating in Hong Kong. All those decisions centred on one 10-month old Internet-based business called Pacific Century CyberWorks Ltd (PCCW), which had no long-term track record and little cash. PCCW''s most important asset seemed to be its charismatic Executive Chairman, Richard Li Tzar-kai, son of legendary tycoon Li Ka-shing. Nevertheless, London-based Cable and Wireless plc (C&W) decided to sell Hong Kong''s biggest telecommunications provider, Cable and Wireless HKT Ltd (C&W HKT or HKT), to PCCW instead of rival bidder Singapore Telecommunications Limited (SingTel). It was one of the biggest corporate mergers in Asia''s history. Four top international banks were willing to underwrite the US$12 billion loan that PCCW needed for the takeover, making it the biggest syndicated loan ever in Asia. The four banks had also rallied about thirty enthusiastic banks to syndicate the loan. But the high expectations for PCCW were shattered within months. PCCW''s share price was almost decimated in the twelve months after it reached a peak in early 2000. The company was deep in debt and suffered huge losses in 2000. In hindsight, PCCW did not appear to be suitable to run a huge telecommunications company. SingTel had much more experience and capital. So why did the board of C&W choose PCCW? And why did the banks decide to lend it US$12 billion? This case can be used to examine how social capital affects business decision-making. It can also be used to introduce different types of business decision-making and to study the credit approval processes in investment banks. Moreover, it offers an introduction to how syndicated loans are set up by investment banks in the international financial market.

About

Abstract

In March and April 2000, a series of unusual decisions, involving billions of US dollars, were made by some of the biggest international companies and banks operating in Hong Kong. All those decisions centred on one 10-month old Internet-based business called Pacific Century CyberWorks Ltd (PCCW), which had no long-term track record and little cash. PCCW''s most important asset seemed to be its charismatic Executive Chairman, Richard Li Tzar-kai, son of legendary tycoon Li Ka-shing. Nevertheless, London-based Cable and Wireless plc (C&W) decided to sell Hong Kong''s biggest telecommunications provider, Cable and Wireless HKT Ltd (C&W HKT or HKT), to PCCW instead of rival bidder Singapore Telecommunications Limited (SingTel). It was one of the biggest corporate mergers in Asia''s history. Four top international banks were willing to underwrite the US$12 billion loan that PCCW needed for the takeover, making it the biggest syndicated loan ever in Asia. The four banks had also rallied about thirty enthusiastic banks to syndicate the loan. But the high expectations for PCCW were shattered within months. PCCW''s share price was almost decimated in the twelve months after it reached a peak in early 2000. The company was deep in debt and suffered huge losses in 2000. In hindsight, PCCW did not appear to be suitable to run a huge telecommunications company. SingTel had much more experience and capital. So why did the board of C&W choose PCCW? And why did the banks decide to lend it US$12 billion? This case can be used to examine how social capital affects business decision-making. It can also be used to introduce different types of business decision-making and to study the credit approval processes in investment banks. Moreover, it offers an introduction to how syndicated loans are set up by investment banks in the international financial market.

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