Shares in port-to-telecoms conglomerate Hutchison Whampoa rose more than 8% on Wednesday and its bond spreads tightened after a British newspaper said the firm planned to sell its Italian 3G mobile operating arm, 3 Italia.
The company is understood to have sent out an information memorandum in the hope of unearthing potential bidders for the Italian division, the largest of its third-generation businesses, the Times of London said in an online report.
Hong Kong-based Hutchison's US$25 billion commitment to loss-making third-generation mobile telecoms has been a drag on its share price since 2000.
The company, controlled by 79-year-old tycoon Li Ka-shing, scrapped plans for an initial public offering of its Italian 3G unit early last year after investors balked at the valuation the company was seeking.
A Hutchison spokesman said on Wednesday the company does not comment on rumors.
During its half-year results briefing last month, Hutchison said it would consider joining its 3G tower network in Italy with that of rival operator Wind in a separate firm, and then lease back capacity.
Credit Suisse analyst Cusson Leung said Hutchison may be looking first to sell the towers and later the operating business, or the company may try again to sell part of the Italian business through an initial public offering.
"They will not be bound by one single option. They are always open to a lot of possibilities, depending on what will maximize value for them," Leung said.
He said the better-performing Italian unit would be sold before Hutchison can sell its UK 3G business, adding that regulatory changes in the European telecoms sector had put pressure on margins, which may drive consolidation among operators.
Hutchison's shares hit a session high of HK$81.75 before easing to $81.65 in late morning trade. The stock has been a laggard, rising just 2.8% since the start of the year, compared with a 21% rise in the Hang Seng Index, of which it is a constituent.
Shares in sister firm Cheung Kong, which owns nearly half of Hutchison, were up 2.6% at HK$117.50.
"The 3G business is still burning cash and they are targeting EBITDA positive next year. If they manage to sell the 3G business it will be good for the balance sheet -- very positive from the fixed income angle," a Hong Kong-based fund manager said.
Hutchison Whampoa bonds due in 2033, considered a regional high grade benchmark, tightened by 5 basis points (bps) after the news to trade at 183/180 bps over U.S. Treasuries.
The cost of insuring Hutchison's debt also fell.
Its 5-year credit default swaps (CDS) -- insurance-like contracts that protect against default and restructuring -- narrowed by 3-4 bps to 35/38 bps.
"3G as a business has always been a drag for Hutch and if they manage to sell it will improve the business profile. It will also provide a benchmark market price for the UK unit," the fund manager said.