Conglomerate sees PSINet providing international gateway and boosting its position in China broadband
Citic Pacific will buy Internet services provider (ISP) PSINet Hong Kong for an undisclosed amount to strengthen its telecommunications-related investments in mainland China.
Stephen Ho, executive vice-president of Citic Pacific, said the deal was expected to boost Citic's competitive position on the mainland, where it operates broadband services via its 80 per cent subsidiary China Express No 1 Backbone Network. The network, when finished, will span 32,000 kilometres across China.
A source at PSINet Hong Kong said Citic Pacific was paying less than US$100 million for PSINet and some of its subsidiaries.
In 1998, United States data carrier PSINet Inc paid US$20 million to buy Hong Kong's then second-largest ISP, Linkage On-line.
PSINet Inc then embarked on an investment spree, buying a series of Internet service providers in Hong Kong during 1998 and 1999, including Hong Kong Internet and Gateway Services, Huge Net, AsiaNet, Global Link and Spider Net.
Citic Pacific's proposed purchase of the company is subject to a number of closing conditions, including approval under US bankruptcy proceedings, though the deal is expected to wrap up next month.
In June, PSINet Inc filed for bankruptcy in the US. However, its operating subsidiaries in Hong Kong are not part of the filing by PSINet Inc under Chapter 11 of the US Bankruptcy Code.
Citic Pacific is listed on The Stock Exchange of Hong Kong and has businesses in trading, property and infrastructure in Hong Kong and China.
The acquisition 'includes certain PSINet Hong Kong subsidiaries but does not include the wireless licence part', said Citic Pacific's Mr Ho. He declined to be more specific about which subsidiaries were included in the deal.
PSINet Hong Kong received one of five licences for local wireless fixed-network services granted last year. PSINet Hong Kong provides narrowband and broadband Internet access, Web hosting and IT services to corporate customers.
Mr Ho said PSINet Hong Kong's name would be changed after the completion of the acquisition in August to reflect the name of its new parent.
He said Citic Pacific had no plans to restructure PSINet Hong Kong, which employs 130 staff.
Layton Lok, general manager, business development and market management for PSINet Hong Kong, said the acquisition would fuel the company's expansion plans for China.
'PSINet Hong Kong's business complements several Citic Pacific technology investments in China, including the China Express fibre-optic network and Citic Guoan. The local broadband business will give it access to talents and facilities,' Mr Lok said.
Citic Guoan is a 50 per cent-owned subsidiary of Citic Pacific, and has stakes in cable television companies in mainland China.
Mr Lok dismissed Monday's report from Hong Kong Cable Television citing a source close to Citic Pacific as saying the company was interested in PSINet Hong Kong's Internet infrastructure and not its Internet access provision service.
Mr Lok said PSINet Hong Kong would continue to operate as normal, adding 'the morale [among PSINet Hong Kong employees] has improved' as a result of the acquisition.
'The acquisition of PSINet Hong Kong will immediately provide Citic with a series of IP solutions, ranging from Internet connectivity, Internet security solutions to IP virtual private network services,' Mr Lok said.
CLP Holdings, which has an Internet access service called Oxygen, outsources to PSINet Hong Kong.
Mr Lok expects growth to be fastest in the outsourcing, Internet and IT consultancy parts of its business.
PSINet Hong Kong plays in an increasingly crowded field of Internet data, Web hosting and Internet services companies, which compete with PCCW, iAdvantage, iAsiaWorks, Pacific SuperNet and Worldcom.