It's definitely not the end of the world

Carl Wong, Bank of America

The company said the bond issue was turning out to be more expensive than existing loans.

"Present volatile bond market conditions arising from Argentina and other uncertainties in the emerging markets have resulted in potential pricing that the company finds unattractive at this time," said PCCW.

Retreat on the road

PCCW hoped to refinance $4.7bn of debt acquired when it bought Cable & Wireless Hong Kong Telecom for $28.5bn last year. The purchase gave it a monopoly of fixed line local services.

PCCW ran up debt when it swallowed C&W HKT

The refinancing would have extended the time PCCW had to repay most of its existing debts from four years to 10.

PCCW managers have been touring international financial markets over the last two weeks to raise support for the bond issue.

The roadshow revealed that investors were looking for a yield of three percentage points or more above US Treasury bonds, analysts said.

Since worries surfaced earlier this month about Argentina's ability to pay $128bn of debt, investors have turned away from emerging-market bonds.

Last week PCCW chairman Richard Li indicated the company might not not go ahead with 30-year bonds because the cost of issuing them was rising.

Now it has decided not to issue 10-year bonds either.

Shares slide

Telecoms and credit analysts in Hong Kong reacted favourably to PCCW's decision to retreat.

"It's definitely not the end of the world," said Carl Wong, credit analyst at Bank of America.

"They have a rationale. Interest rates would have been higher than they are paying at the moment."

PCCW still has until early 2004 before it is due to repay the first tranche of $1.5bn of debt.

It has little prospect of raising funds on the stock market, as the company's shares have fallen 93% percent since February 2000.

News it had pulled out of the bond issue sent its shares tumbling 7.3% on Monday to a new 52-week low of HK$1.97, though they recovered slightly to close at HK$2.025, down 4.7% on Friday's closing price.

PCCW reported a loss of $886m for 2000.