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PCCW Slides After Stake Sale Rejected, PCRD Drops

Shares of PCCW dropped more than 4 percent on Friday after shareholders of Richard Li's Singapore-listed Pacific Century rejected a plan to sell a stake in the Hong Kong phone company to a group led by financier Francis Leung.

Shares in PCCW dropped as much as 4.4 percent to a morning low of HK$4.83 after trade resumed. At 0248 GMT, they were down 3.8 percent at HK$4.86. Singapore-listed Pacific Century Regional Developments slid 5.1 percent to S$0.37.

The falls come a day after Richard Li's plan to exit PCCW was defeated by Pacific Century shareholders when they voted down the $1.17 billion sale of its roughly 23 percent PCCW stake to the group, which included Spanish carrier Telefonica and a foundation controlled by Li Ka-shing, who is Richard Li's father.

Three quarters of the votes opposed the sale.
"We feel that the market was expecting this vote to go through," Citigroup analyst Rohit Sobti said in a report.

"The rejection of the proposal also eliminates the promised special dividend by Richard Li to PCCW shareholders, which was another reason some investors had bought the stock in our view."

China Netcom Group, the second-largest shareholder in PCCW after Pacific Century, said on Friday it remained concerned about the development of PCCW. It did not elaborate.

Shareholders at the meeting in Singapore on Thursday blamed an inadequate offer price, the absence of a guaranteed special dividend from the deal, and not enough visibility about Pacific Century's future.

Thursday's vote also ended a deal that had provoked concerns about interference by Beijing, competition worries -- and ridicule.

"While we see the politics associated with this company continuing to pose a challenge for any deal going through smoothly, we do expect the current reversion to status quo to be short-lived," Sobti said.

Sobti said that given the visible intention of the majority shareholder, Richard Li, to exit the company and the fact that it was an undervalued telecom asset, merger and acquisition prospects would remain a valid theme for PCCW.

Citigroup has a "buy/medium risk" rating on the stock.

PCCW said earlier on Friday that it was not in talks regarding the possible sale of all or most of its telecommunications and media-related assets.

PCCW also said that its major shareholder, Pacific Century, was not currently involved in any talks for the possible sale of its stake in the company and that Richard Li would continue his role as chairman of the company.