‘We’ve just leapfrogged 4-5 years of organic growth’: Hong Kong Broadband Network spending HK$650mln on telecoms merger

HKBN expects enterprise software business to double in size after it snaps up online marketing operations of New World Telephone Holdings

PUBLISHED : Thursday, 18 February, 2016, 7:21pm
UPDATED : Thursday, 18 February, 2016, 7:21pm

Hong Kong Broadband Network (HKBN) is gearing up to double the size of its enterprise services business by acquiring the fixed-line broadband network and online marketing operations of New World Telephone Holdings in a cash transaction valued at HK$650 million (US$83.55 million).

The merger, announced in a regulatory filing on Thursday, is expected to result in a telecommunications operation with over HK$3 billion in total revenue, more than HK$1 billion of which would be from enterprise customers.

“We’re continuing to grow and on track to becoming the largest broadband provider in Hong Kong by 2019.”
Lai Ni Quiaque , HKBN chief financial officer

“We’ve just leapfrogged four to five years of organic growth and doubled our enterprise solutions business overnight with this deal,” HKBN chief financial officer Lai Ni Quiaque told the South China Morning Post.

“We’re continuing to grow and [are] on track to becoming the largest broadband provider in Hong Kong by 2019.”

The HKBN acquisition appears to mark the final pull back from the telecommunications business for property-based conglomerate New World Development, the parent of New World Telephone.

In 2014, Australian telecommunications giant Telstra and New World Development sold all their interests in CSL New World Mobility - then recognised as the largest wireless network operator in Hong Kong - to PCCW’s HKT for US$2.43 billion.

In addition to the merger deal, HKBN plans to enter into a rebate agreement once the transaction is closed within the next few months.

New World Development, Chow Tai Fook Enterprises and their subsidiaries - representing the main customer group of New World Telephone - would enjoy rebates totalling HK$50 million over a four- year period.

“We are dedicated to making our Hong Kong a better place to live, by providing high-speed broadband access and top-class telecommunications services to the residential and business markets. We see this deal as the logical next step in this journey,” HKBN chief executive William Yeung Chu-kwong said.

New World s telecoms business is run through a network covering approximately 491 commercial buildings in key business districts around Hong Kong. Services include international voice services (IDD services), data centre services, as well as other fixed line and broadband services.

HKBN has invested HK$4.1 billion in fixed assets over the past 14 years, establishing one of the most extensive fibre optic networks in Hong Kong.

READ MORE: HKBN gears up to unleash streaming video storm on Hong Kong

New World Telephone’s traditional fixed-line and high-speed broadband telecoms business runs through a network covering 491 commercial buildings in key business districts around Hong Kong. It provides international voice calls and data-centre services, as well as online marketing solutions for search advertising, online display and social media.

“Our operations are highly complementary ,” Lai said.

HKBN’s 39,000 enterprise customers are made up mostly of small businesses with up to 10 employees that spend about HK$1,010 per month on average for fixed-line services.

In comparison, New World Telephone enterprise accounts total 5,000 mostly medium-sized businesses, with average monthly spending of more than HK$5,000.

HKBN is expected to add HK$30 million to its annual capital expenditure after the deal closes. A Barclays report said HKBN had earlier budgeted HK$400 million in capital spending this year.

The acquisition will be financed by a five-year loan facility of up to HK$700 million, underwritten by JPMorgan Chase Bank.

HKBN, which announced the New World deal just ahead of the start of trading on Thursday, saw its share price rise 3.33 per cent to close at HK$9.94.