Hutchison jumps after Italian 3G asset sale report

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HONG KONG, Sept 12 (Reuters) Shares in ports-to-telecoms conglomerate Hutchison Whampoa Ltd surged as much as 8 percent on Wednesday and its bond spreads tightened after a report said it 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 billion commitment to loss-making 3G mobile telecoms has been weighing down on its share price since 2000.

''This just reflects how pleased people would be if it sold 3G, which was a drag,'' said Andrew Sullivan, sales trading director at Daiwa Securities.

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 baulked at the valuation the company was seeking.

A Hutchison spokesman said on Wednesday the company did not comment on rumours.

During its half-year results briefing last month, Hutchison said it would consider joining its 3G tower network in Italy with that of local rival operator Wind in a separate firm, and then lease back capacity.

SALE MAY BE PREMATURE Morgan Stanley said reports of a 3 Italia sale are ''probably premature'' after the unit's operating performance in the first half and tough market conditions.

''An outright sale of 3 Italia seems unlikely after the weak 1H07 Italian numbers and the deteriorating operating environment in Italy in 2H07, with further reductions in roaming fees and fixed-to-mobile termination rates,'' the investment bank wrote in a research note.

Credit Suisse analyst Cusson Leung said Hutchison might be looking first to sell the towers and later the operating business, or the company might try again to sell part of the Italian business through an IPO.

''They will not be bound by one single option. They are always open to a lot of possibilities, depending on what will maximise 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.

SHARES RALLY Hutchison's shares hit a session high of HK.75 before ending up 6.2 percent at HK.15. The stock has been a laggard, rising just 1.4 percent since the start of the year, compared with a near-22 percent rise in the Hang Seng Index.

Shares in sister firm Cheung Kong (Holdings), which owns nearly half of Hutchison, rose 3.9 percent to HK9.

''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.

REUTERS DKS SSC1517

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