Citic cuts stake in HK Telecom

A fresh bout of uncertainty hit the Cable & Wireless-controlled Hongkong Telecom with news yesterday that its main Chinese-owned shareholder, Citic Pacific, had cut its stake in the colony's telecommunications company from 10 to 8 per cent.

Citic Pacific is the locally listed arm of Peking's largest investment company, the China International Trust and Investment Corp, which recently raised its stake in Cathay Pacific Airways from 10 to 25 per cent amid suggestions that it would eventually take control of the airline away from the British-run Swire Pacific.

The sale of its Hongkong Telecom stake raised some HK$3bn (pounds 252m), which will contribute to the HK$6.3bn Citic Pacific needs to raise for the Cathay deal agreed in April and for a clutch of infrastructure projects in China.

This is the second time this year that Citic Pacific has sold down its stake in Hongkong Telecom. In January it raised about the same amount when reducing its share ownership from 12 to 10 per cent. When it first acquired Hongkong Telecom shares in 1988 Citic's holding stood at 20 per cent.

However, the sale cannot be clearly seen as a sign of retreat from Hongkong Telecom because Citic Pacific makes frequent forays into the market to raise cash. In September 1995 it cut its stake in Cathay before returning eight months later to take a far larger share.

The Chinese-controlled company says it sold the shares in order to "refocus" its investment strategy, however it retains a holding in the telecommunications utility in the nearby Portuguese enclave of Macau and had previously identified telecommunications as part of its core business.

Hong Kong investors are keen to find out who bought Citic Pacific's shares, at a hefty 6 per cent discount. The company declines to comment. In recent weeks there have been market rumours that China's second telecommunications network, China United Telecommunications Co, in which Citic Pacific's parent has a significant share, would be buying into Hongkong Telecom.