Shareholders say yes to HTIL privatisation

The independent shareholders of Hutchison Telecommunications International Ltd (HTIL) yesterday voted yes to a privatisation of the company by Hutchison Whampoa, clearing the way for a HK$4.23 billion ($545 million) payout that will mark the end of what has been a very profitable venture for investors.

Excluding the final buyout, HTIL has generated total returns of 178% for its shareholders since its initial public offering in 2004, according to Hutchison's estimates, which translates into an annualised return of 22% per year through December 2009. These returns include dividends and the spin-off of HTIL's Hong Kong and Macau mobile business last year.

Contrary to several unsuccessful attempts by other large Hong Kong-listed companies to take subsidiaries private in recent years, this offering went very smoothly with 99.5% of the votes cast by independent shareholders present at yesterday's shareholders' meeting being in favour of the privatisation. This was well above the 75% that was needed and also meant that only about 0.5% of the votes were cast against the deal.

The privatisation is to be completed through a scheme of arrangement, which in Hong Kong means that no more than 10% of the votes controlled by independent shareholders can be cast against -- or the deal will fail. In the case of HTIL, independent shareholders make up about 33% of the share capital, which meant that shareholders controlling only 3.3% of HTIL's share capital could have blocked the privatisation should they have wished to do so.

The key reason for the success, say sources, was the very fair price offered by Hutchison and the fact that the Li Ka-shing-controlled company said straight away that it had no intention of increasing the offer price. The latter meant that there were never any attempts to push the share price above the offer price to force a bigger payout.

"When it comes to the overall strategy for a privatisation, the most important thing is always the price and here it was clear right from the start that shareholders were happy with the price and had no issues with the deal," one source said, noting that some analysts suggested before the offer price was announced that HK$2.05 or HK$2.10 would be a fair price.

In fact, Hutchison offered HK$2.20 in cash for each share, or the US dollar equivalent of HK$33 per American depositary share, which represented a 33.3% premium over the last trading price of HK$1.65 before the offer was made in early January. The share price jumped 28.5% the day after the offer to a close of HK$2.12 and since then has been hovering around HK$2.15. Hutchison is buying the 39.5% of HTIL that it doesn't already own.

Since it was quite clear that the deal would go ahead, many of the long-only investors have sold their shares over the past few months, giving up the last few cents to avoid having something go wrong at the last minute. The buyers have generally been event-driven players who were willing to take that risk in return for an all but certain profit of a few cents per share.

The privatisation will allow Hutchison to make the necessary -- and still significant -- investments into HTIL's emerging mobile businesses without worrying about also providing short-term returns to shareholders.

"Hutchison has the luxury of being able to take a long-term view on these companies," said the source, who noted that other investors wouldn't necessarily be as patient. The company's remaining businesses in Indonesia, Sri Lanka, Vietnam and Thailand, all still generate negative cash flows and none is in the top-three in its country. If HTIL was a new business it would not be ready for a listing, he added.

When HTIL listed in 2004 it had a more diverse profile and, in addition to the new businesses in emerging markets, it also included Hutchison's mature mobile operations in Hong Kong and Macau. Since then, HTIL has sold its controlling stake in India's third largest mobile operator, Hutchison Essar, to Vodafone and its controlling stake in Israel's Partner Communications. In May last year it also spun off the Hong Kong and Macau business through a 100% share distribution to its shareholders. That business was then listed on the Hong Kong stock exchange through an introduction.

This left HTIL with no cash-generating businesses at all, while the sale of assets also resulted in a sharp drop in HTIL's market capitalisation from a high of HK$95.6 billion in January 2007 to about HK$7.9 billion at the time of the privatisation offer. This led to a significant decline in liquidity and trading activity and, in the second half of 2009, HTIL underperformed the Hang Seng Index by 27.5%.

HTIL will be delisted from the Hong Kong stock exchange on May 25 and from the New York Stock Exchange on June 4. However, the ADSs on the NYSE are expected to be permanently suspended from May 25 as well.

Hutchison is being advised on the privatisation by Goldman Sachs.