Wharf Holdings Ltd

HKBN, private-equity group lead bidding for Wharf’s telecoms unit

Doubts over HKBN’s ability to quickly raise financing for a deal widely speculated to be worth more than US$1 billion

PUBLISHED : Monday, 26 September, 2016, 8:48pm
UPDATED : Monday, 26 September, 2016, 11:21pm

Hong Kong Broadband Network (HKBN) is going head-to-head with the consortium of MBK Partners and TPG Capital as front-runners in the bidding for the fixed-line telecommunications business of property giant The Wharf (Holdings), according to three people with knowledge of the matter.

Speculation has been rife that the conglomerate’s Wharf T&T operation may fetch a purchase price of just over US$1 billion, making it the latest big-ticket corporate telecommunications acquisition in Hong Kong since HKT bought CSL New World Mobility for US$2.43 billion in 2014.

The three sources said HKBN, the city’s second-largest fixed-line residential broadband operator, had submitted the most aggressive bid to acquire Wharf T&T, which runs enterprise broadband, data centre and system integration services.

Wharf’s divestment plan, which was first reported by Reuters in June, had also attracted US private equity firm KKR and mobile network operator SmarTone Telecommunications as bidders, the sources said.

Alfred Lau, an analyst at Bocom International, told the South China Morning Post on Monday that he estimated the value of Wharf T&T to be “roughly US$500 million”.

“If the Wharf group can raise about US$1 billion from the sale, then that would be a positive and result in a gain of US$1 per share,” Lau said.

“That’s not a huge amount, but this approach is in line with Wharf’s strategy of divesting non-core assets after locking up good valuation for them.”

When contacted by the Post, KKR, SmarTone, HKBN, TPG and MBK all refused to comment “on market speculation”.

Stephen Ng Tin-hoi, the chairman and managing director of the Wharf group, last week declined to provide any update on the widely speculated bidding process.

“No, not yet,” Ng told the Post on the sidelines of a Wharf property briefing last Wednesday.

According to sources, Wharf’s announcement of the bid results was imminent, following earlier reports that a winner would be known by Friday this week.

Lau said he was hard-pressed to believe that HKBN could quickly muster the financial resources needed to buy Wharf T&T.

“Being private-equity firms, KKR and the TPG-MBK group would have more access to financing,” Lau said.

William Yeung Chu-kwong, the chief executive at HKBN, said in April that the company was “open to making another acquisition if the price is right”, following the company’s US$650 million cash purchase in February of New World Telephone Holdings’ fixed-line broadband network and online marketing operations.

That seemed like a highly rosy outlook from HKBN’s senior management after their proposed general mandate “to issue, allot and deal with additional shares not exceeding 20 per cent of the issued share capital of the company” as a way to quickly raise more funds was voted down in a poll at their annual general meeting in December.

San Francisco-based TPG, one of the world’s largest private equity companies, provided a strategic investment in Hong Kong-listed Lenovo Group for its acquisition of IBM’s personal computing business in 2005.

Seoul-based MBK is a private equity company with a long track record of investing in Asian telecommunications and pay-TV assets, including in Taiwanese cable TV provider China Network Systems.

Lau said the other widely speculated plan by the Wharf group to sell its majority stake in struggling pay-television operator i-Cable Communications “remains a question mark”.

“I would be surprised if they bundle a deal to sell both Wharf T&T and i-Cable,” he said.

The largest corporate telecommunications buyout in Hong Kong remains the US$38 billion takeover of Cable & Wireless HKT in 2000 by Pacific Century CyberWorks, which was tycoon Richard Li Tzar-kai’s internet investment start-up at the time.

Additional reporting by Sarah Zheng