Mobile phone service provider Hutchison Telecommunications (Australia) Ltd has revealed that it is planning to raise about A$2.85 billion ($2.26 billion) in equity to pay debt and speed up its efforts to increase profitability. The company seeks to raise money by selling convertible preference shares to cut interest costs. However, the announcement prompted a slump in the firm’s share price. The shares plummeted as much as 14.6 percent after the news, before closing down 12.2 percent on the day at 18 cents.

The Sydney-based unit said in its official statement that Hutchison Australia will sell about A$2.85 billion ($2.3 billion) of convertible preferred shares, mostly to its parent Hutchison Whampoa Ltd. The Australian telecom company is controlled by 78-year-old Li, who owns around 58 percent of the Australian unit. The company has reported seven years of losses. The company has further said that the equity raising will reduce the company’s debt substantially, improving its bottom line position through the reduction of funding costs.

As a matter of fact, Hutchison Australia struggling to report profit because of expenses incurred on building its high-speed wireless network to compete with its fierce competitors Telstra Corp., Singapore Telecommunications Ltd.’s Optus and Vodafone Australia. However, market still skeptical over investing in the company. Analysts are arguing that though the debt reduction will help the Australian unit become profitable in 2009, still it remains a high-risk investment.

The Australian firm is at present rolling out its third generation mobile phone network in Australia. Its ‘3′ brand is the obvious leader in the 3G market but the company has yet to report profit. Hutchison’s debt is expected to reduce to approximately $1.1 billion.

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Posted by: Balendu    Source