HONG KONG: As shares of Hutchison Whampoa surged over 4 percent yesterday after news that it may privatize telecom unit Hutchison Telecommunications International Ltd (Hutchison Telecom), market experts are generally positive about the possible deal.

Market watchers believe the likely move is positive for the parent in that a successful buyout will help it realize the value of its investment in the telecom businesses, and will allow it to make good use of the cash that Hutchison Telecom has amassed.

A privatization move will help Hutchison Whampoa restructure its global telecom businesses and deploy the cash amassed by the telecom unit more effectively, BOC International said in a short research note.

Hutchison Telecom has been sitting on a pile of HK$8.0 billion cash after it disposed of its operation in Israel last October. Moreover, it has not made any major acquisition move since selling its Indian operation in 2007, BOC International noted.

"It is hard to speculate the motive behind Mr Li's move, as it always is. He could see something that we did not," said Allan Ng, a telecom analyst at BOCI International.

However, some analysts note that the privatization move is in line with Hutchison Whampoa's long-practiced strategy of monetizing gain in any investment when the price and time is right.

"Hutchison Whampoa is more a trader ... It will sell any piece of asset when the price is good," said Elinor Leung, a telecom analyst at CLSA.

The conglomerate disposed of its telecom business in the UK, Orange, in 1999.

Hutchison Telecom, which was spun off from the parent and listed separately in October 2004, sold its operation in India in February 2007 and disposed of its business in Israel in October 2009. It also spun off its Hong Kong and Macao operations for a separate listing in the Hong Kong stock exchange last year by selling shares to the public.

After disposing of its most profitable assets, Hutchison Telecom has been left with unprofitable operations in Vietnam, Indonesia, Sri Lanka and Thailand, analysts note.

Hutchison Telecom will likely dispose of the remaining operations if it can. It will not make further investment in these relatively small, competitive and fragmented markets, CLSA's Leung said.

Privatizing Hutchison Telecom will be a natural choice for Hutchison Whampoa if this reasoning proves to be correct.

Dickie Wong, research director at Kingston Securities Ltd, holds a view similar to Leung's.

"Telecom assets are not valued highly in the market because of their huge investment, including that for license fees. Selling a telecom asset is a good way of realizing its value," Wong said.

After announcing the disposal of Hutchison Telecom's business in Israel, Canning Fok, chairman of Hutchison Telecom said, "This transaction brings to realization the significant value that we have created in Israel ... We believe this is the right time to monetize the gain from our investment for the benefit of Hutchison Telecom and its shareholders."

Hutchison Whampoa closed the day at HK$56.25, up HK$2.20 or 4.1 percent after jumping as much as 5.2 percent earlier in the day.

Trading in shares of Hutchison Telecom remained suspended after the global telecom operator said Monday that parent Hutchison Whampoa, tycoon Li Ka-shing's flagship conglomerate, may try to privatize the unit by buying out minority shareholders.

(HK Edition 01/06/2010 page4)