SB
CONFIDENTIAL
L.
Lijfer
D.S. DBI-
CABLE AND WIRELESS LTD
In considering the possible sale of shares in Cable and Wireless Ltd, a major factor to be taken into account is that a large part of the company's profit is generated from its public telecommunications concession in Hong Kong, which expires in 1987. Two merchant banks acting independently have advised that a sale of shares is feasible but only after the satisfactory negotiation of an extension to the existing Hong Kong concession (and preferably also after the renewal of the important concession in Bahrein).
2.
Both banks identify the preferred course as an early (probably summer 1980) sale of shares in a new subsidiary to set up and run C & W's Hong Kong operation to be followed by the later consideration of a sale of shares in the main company (only the latter action would require legislation here). Both banks estimate the capitalisation of the Hong Kong operation at over £400m, but it is thought unlikely that a flotation on the Hong Kong market would raise more than £50m. However, it is possible that the Hong Kong Government, local institutions or overseas investors might be interested in taking up shares.
3. Mr Butler raised the subject of a possible sale of shares in the main company with the Governor of Hong Kong during a visit to this country in June. The Governor saw no serious problems in this (the idea of a separate Hong Kong subsidiary was not floated with him) provided that HMG retained control of the company with a 5% shareholding. He offered to send a tean of Hong Kong officials to London for detailed discussions. At a separate meeting with PT Division, Mr Haddon-Cave, Hong Kong's Financial Secretary, stressed the importance of maintaining Hong Kong's pre-eminent position in telecommunications and the need in any sale of shares to provide an opportunity for Hong Kong participation.
4.
The current position is that Barings have been commissioned by the Department to carry out a detailed study of the financial benefits to be gained by a sale as compared with the status quo, The study is to be completed by 10 September 1979. If Ministers subsequently decide to proceed with the idea of a sale of shares it will be necessary to carry out formal negotiations with the Hong Kong Government and to consult a number of other overseas Governments.
5.
If the subject is raised by the Governor or Mr Haddon-Cave, they can be told in strict confidence that HG is continuing to give urgent consideration to the matter and, if there is a decision in principle to proceed with a sale of shares, it is expected that the Department will shortly wish to take up the Governor's offer to send a team of officials to the UK for fumenor detailed discussions. If the matter is raised by others, they should be told that HMG is reviewing its public assets generally, but there are at the moment no plans to sell shares in Cable and Wireless.
CONFIDENTIAL