Wharf Holdings Ltd

Fast-track disposal of i-Cable stake tipped for Hong Kong’s Wharf

Move would follow HK$9.5b buyout of telecoms unit Wharf T&T by private equity firms MBK Partners and TPG

PUBLISHED : Wednesday, 05 October, 2016, 1:31am
UPDATED : Wednesday, 05 October, 2016, 11:01pm

Property giant The Wharf (Holdings) may step up the sale of its interest in struggling pay-television operator i-Cable Communications, following the acquisition of its fixed-line telecommunications business by private equity firms MBK Partners and TPG for HK$9.5 billion in cash.

In a filing with the Hong Kong stock exchange on Wednesday, hours after that deal for Wharf T&T was announced, i-Cable said parent Wharf and the company “continues to assess proposals from various independent third parties” about an acquisition.

Speculation was rife, however, that the Wharf group could strike a deal sooner than later.

“If I’m doing the deal, I’m doing it right now because who knows what will happen next year,” Alfred Lau, an analyst at Bocom International, told the South China Morning Post.

“What i-Cable and Wharf T&T have in common is that these are both well-established businesses with steady income, which appeals to private equity companies and other investors looking for such opportunities.”

Wharf, a subsidiary of Wheelock and Company, started its communications, media and entertainment business segment more than 20 years ago. This segment, composed of Wharf T&T and i-Cable, accounted for 9 per cent of Wharf’s HK$40.87 billion total revenue last year.

Wharf last year initiated a strategic review of that business segment. The group announced in March that it had received a number of proposals that included the possibility of a direct or indirect acquisition of its interest in i-Cable.

These are both well-established businesses with steady income
Alfred Lau, Bocom International

“The timing is right for Wharf [to sell] since i-Cable’s current market cap is HK$1.83 billion, and the deal would be smaller because Wharf is not expected to dispose of its entire 73.8 per cent stake in that company,” Lau said.

Sources had earlier said there was little interest in the market for i-Cable, which has seen a steady drop in revenue competing against HKT-owned Now TV and various so-called over-the-top online streaming video services.

The HK$9.5 billion cash acquisition of Wharf T&T by MBK and TPG late on Tuesday marked the the latest big-ticket corporate acquisition in Hong Kong’s telecommunications industry since PCCW-controlled HKT bought CSL New World Mobility for US$2.43 billion in 2014.

Wharf T&T is touted as the city’s largest enterprise-focused, fixed-line telecommunications network services provider, with more than 50,000 corporate customers.

Wheelock and the Wharf group are estimated to gain HK$4.5 billion and HK$7.4 billion, respectively, from the sale of that business, which provides enterprise broadband, data centre and systems integration services.

They said the net asset value of Wharf T&T was HK$2.1 billion at the end of June. It reported profit after taxation of HK$301 million last year and HK$314 million in 2014.

That transaction is expected to close on or before November 23. MBK and TPG have established a new 50-50, special-purpose company for acquiring Wharf T&T.

“Both MBK and TPG have extensive investment experience in telecommunication assets around the world,” Wharf group chairman and managing director Stephen Ng Tin-hoi said in a statement. “We believe that Wharf T&T will be best positioned to achieve its next phase of growth and development after the acquisition.”

According to sources, the most aggressive bid for Wharf T&T was submitted by Hong Kong Broadband Network, the city’s second-largest fixed-line residential broadband network operator. Other reported bidders were mobile network operator SmarTone Telecommunications and US private equity firm KKR.