CyberWorks, Richard Li's Internet and telecommunication venture, invested HK$71.9 million in iLink starting in September 1999. Should iLink sell new shares at the top of the proposed range, CyberWorks will have an unrealized eight-fold return.
While the initial share sale will boost the value of CyberWorks' venture capital investments, investors may be skeptical about the outlook for the data center business, especially the company competes with CyberWorks units.
"Investors are generally concerned about rising competition in the data center business in Hong Kong," said Stephen Leung, an analyst at CLSA Ltd. "The share offer could however be successful given its small size."
The company, which announced plans to list in October, cut its fund-raising target by at least a fifth because of diminished investor interest in Web stocks. It now aims to sell 110 million shares for between HK$1.10 and HK$1.28 each, raising as much as HK$140.8 million.
iLink's plan to spend HK$59 million setting up data centers in Taiwan and Shenzhen mean the company may compete with CyberWorks' other data center operations acquired with Cable & Wireless HKT Ltd in August, the listing document said.
CyberWorks operates Powerb@se, a data center services brand that came with HKT, and owns 43 percent of Beijing Centergate Data Technologies Co., which provides Web services. It formed a data center venture with Australia's Telstra Corp. in October.
CyberWorks "does not have the board discretion to group the two businesses with that of iLink.net," the document said. The company said it is reviewing its data center investments and may draw up a plan to "rationalize" the business.
Outside competition includes Sunevision Holdings Ltd., backed by Sun Hung Kai Properties Ltd, Hong Kong's second-largest property developer, which has 500,000 square feet of data centers in Hong Kong and plans to add 200,000 square feet.
During the 10 months through October, iLink lost HK$28.6 million on sales of HK$25.4 million in sales, 40 percent of which were to CyberWorks, the document said. It had HK$163 million in cash as of the end of October.
After converting debt into stock and the first public share sale, CyberWorks, Asia's second-largest Internet investor, will own 47.9 percent of iLink stock, 504.6 million shares. iLink will start trading on March 9.
iLink will sell 10.4 percent of the company to institutional investors. Dell Computer Corp will own 4.6 percent and Henderson Investment Ltd will own 8.9 percent. Other shareholders include Dotcom Pacific Ventures, which owns 21 percent, and HSBC Trustee, holding 7.6 percent.
BNP Paribas Peregrine Ltd is organizing the share sale with the help of e2-Capital Securities Ltd.
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