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Frank Sixt |
Why did you decide to try to issue when you did?
I didn’t do it in the first half because I had a view on interest rates that suggested they wouldn’t be rising as quickly as people thought. And we were busy on other things. We were completing the financing for Italy, we were involved in the Global Crossing transaction, and were working through the details of our retail acquisition. So it seemed perfectly logical to look at a September issue – not an unconventional time to look at markets. But we hit an unconventional series of market events.
Was it a shock not to get the issue away?
The shock was that nobody could get anything away. Take a look at those couple of weeks. There wasn’t a euro-denominated corporate or sterling-denominated corporate issue. The market just shut down. But because we are a large Asian corporate, its much more exciting if you write Hutch wasn’t able to raise money. The real headline should have been that there was no market where money was being raised. If it persists, that is far more worrying. Such a lack of liquidity could become troublesome for many other issuers. The $13 billion of cash, money-market instruments and investment-grade bonds on our balance sheet covers every single maturity we have for the next five years. And we have more than US$3.5 billion of other marketable securities. So it’s not a problem for us. But it was a frightening experience.
Why did you feel it necessary to access the euro and sterling markets?
These were markets that we had not been to since 1999. That’s too long. Indeed in euros we only have one small issue. And for an issuer of our size it’s not liquid enough to act as a benchmark. And with our asset profile given the investments we have made in Europe and the UK, it’s quite reasonable to take some near-term US maturing liabilities and turn them into medium- and long-term euro and sterling liabilities.
Do you think it would have been different if you had gone for dollars?
Probably not that week.
But it was always going to be tough to get the euro issue away in Asia. If you had gone into Europe with an Asian bid behind you would the issue have then been possible?
I had a view from our three arrangers that that would not be a bar to success. And frankly if the markets on September 30 had been what they were on the previous Monday we would have had no problem in succeeding in what we set out to do, which was to raise e1 billion, which would have been a benchmark. And something like 200 million to 300 million in sterling.
Why did you choose JPMorgan, Deutsche and HSBC rather than your usual Goldman Sachs and Merrill Lynch?
We have worked with these banks before. If you go back to 1999, our first foray into the euro corporate bond market was with Deutsche and HSBC. These are very powerful players in those markets. As is JPMorgan. It was one of the joint lead arrangers on our last dollar issue. So these are all banks we work with. I would challenge anyone that says these banks don’t have the right credentials to lead an offering in the sterling or the euro market. I certainly have confidence in them.
These banks have lent a lot for your 3G business.
I have an obligation to bear in mind the people who support us. And I support them when I have an opportunity. So when I am doing something that is the stock in trade of one of our group’s good supporters, why would I not give consideration to that person for the job? Not that the league tables are the be all and end all, but none of these guys is at the bottom. So I would challenge anyone who says that they were not appropriate advisers.
You have a lot of power over these banks?
I don’t think so.
Who was driving the deal?
I was. It was my decision.
Will you still use those banks?
Sure.
Do you think that coming and failing has affected the way you are viewed in Europe?
Well, to the extent that there is a negative perception created by the histrionics with which the story has been covered in some of the press, it will be our job to overcome that. But that just means I need to do a better job of doing what I do, which is to explain the real picture of our group as plainly and as simply as I can.
Many in Europe see you as primarily as a telecom company. How would you describe Hutchison?
Hutchison is five major businesses. Ports, energy and infrastructure, property, retail and telecommunications. Based on our reported first-half results, the ports business is 14% of our assets and makes up 32% of our earnings. Energy is 15% of our assets and contributes 32% to our earnings. Telecoms is 29% of assets and gives 7% of our earnings. Given that 25% out of the 29% of our assets that are invested in our telecom division are new investments in 3G and are not contributing earnings at the moment, this is quite a solid earnings performance from our existing telecoms operations.
Your bond issue failed and your share price has been hammered. Many point to your 3G strategy as the main reason for this. Do you disagree with the market’s perception of you?
I never agree or disagree with our share price. My view is that there is an irrational level of volatility right now, which is led by hysteria. And from time to time it will affect our stock, like others, adversely.
Do you think that the 3G is dragging down your stock price further than perhaps it would otherwise have fallen?
I think that people have been excessively concerned about 3G. This is why I always try to communicate our risk management approach to the 3G reinvestment cycle. We have said this many times – we will not reinvest more in third generation than we realized in profits out of second generation.
That’s if it’s successful?
No. Period. Regardless of what happens. The exposure will never be more than the profit we took out of our telecommunications division in 1999, 2000, and 2001. People forget we sold Orange to Mannesmann, Mannesmann to Vodafone and sold Voicestream to Deutsche Telekom. We booked profits of $25 billion. Even with the decline in Vodafone and Deutsche Telekom’s share prices, which is reflected in the subsequent provisions we have made, I expect we will realize cash profits in the order of at least US$18.5 billion in total from those transactions. Our exposure to 3G will never come close to the profits that we took out of cellular. I would be the first to agree that this is a large reinvestment cycle. But it’s a reinvestment of the profits that that division contributed and it does not weigh on or diminish or put at risk any of our other divisions.
So you definitely wouldn’t use any of your businesses to prop up your 3G business?
Absolutely not. There will never be a need to. My mandate as finance director was to make sure that was not the case and to manage the risks so that didn’t happen. That is why our exposure is exactly what it is and not any more. I believe we have an opportunity to create solid earnings growth out of our telecoms strategy, and that our telecom division will be very valuable going forward. Once we have started to see performance from the current reinvestment cycle we will then consider if that performance supports further investment.
When will that be?
At best is three years and at worst five years before measurable earnings contributions come from the new investments.
What’s a measurable contribution?
I would define that as achieving earnings before interest and tax and depreciation.
Whose fault is it that you can’t get the message across. You seem to blame the market for not understanding what you want to do.
There is absolutely no way that I am blaming the market. Only a fool blames the markets and questions their judgement at the end of the day. It is a communication exercise, which we try as best as we can. I use the expression that no-one succeeds when they try to push against the tide. And there is a tide these days that is profoundly negative against telecoms. That’s hardly surprising given the amount investors have lost because of false promises.
Aren’t you doing the same thing, giving promises about making all this money out of 3G?
The difference is that we have not put at risk the future of this organization. There is a significant credit problem in the telecom industry. Hutchison doesn’t have a credit problem. We are not a massively exposed, leveraged, bankrupt telecom. But having said that, in the kind of storm we are going through, its difficult for rational debate to be heard. Our job is to communicate as clearly as we can. And basically our job is to deliver as opposed to promising.
You are pushing ahead with a strategy while every one else is pulling back. Is this a courageous bet, and why are you so confident it will pay off?
It’s not a bet. Bet and gambling analogies are for people who roll dice. We have 4,500 people earning a living developing technology to deliver 3G. That is not a bet.
But it hasn’t been proven yet.
What do you mean? You haven’t made a video-conference call over a mobile device. I have. You don’t know what your mobile device can really do for you tomorrow. I believe that we do. On that basis we are following our plan to build a substantial business in what we believe people will do in future with wireless devices, based on existing and known technology.
But DoCoMo and KPN have written down their 3G investments.
Well at the same time they have announced that it is one of their core businesses. I have no other comment but that I am mystified.
If you are so confident it will work, why is everyone down on you?
Because I think that seeing is believing. We have tried to pursue a strategy by not engaging much in debate. We have said less rather than more and shown less rather than more on the theory that all that matters is what really happens when real customers are using real devices on real networks in the street.
