A face-saving private placement hastily arranged by Goldman Sachs, which raised a token sum at the US$9 billion valuation that Hutchison claims its Italian business is worth, fooled no one. The terms of the deal extracted from investors were sufficiently draconian to make that evident.
The immediate ramifications of the failed deal are not that significant. According to analysts, Hutchison’s 3G business in Italy, having just turned cash positive, is not in need of the fresh capital and the unit already enjoys a market share of 8%.
The real problems might lie closer to home where the group’s leveraged bet on its 3G telecom assets is beginning to exact a painful price. Hutchison’s gearing is already sufficiently high to cause investors and analysts concern and the failed IPO was seen as an attempt to prove to the market that it is seriously undervaluing the conglomerate.
“The IPO was supposed to be a benchmark,” says Elinor Leung, telecoms analyst at CLSA. “A lot of investors aren’t really valuing Hutchison’s 3G business. If they’d floated at US$9 billion, fair value for Hutchison shares would be HK$90 versus HK$75 now.”
Equally critical to Hutchison is that without the exceptional gain from the assets sale, management will need to rely on other financial conjuring if it is to avoid disappointing results.