Hutchison Whampoa

Hutchison Telecom shares soar on speculation over bidding for its fixed-line network business

Private equity companies TPG Capital and MBK Partners look to be front-runners for Hutchison Global Communications

PUBLISHED : Tuesday, 18 July, 2017, 10:38pm
UPDATED : Tuesday, 03 July, 2018, 8:57pm

Shares in Hutchison Telecommunications Hong Kong, the city’s second-largest mobile network operator, soared 9.3 per cent to close trading near a two-year high on Tuesday amid speculation over the bidding for the company’s fixed-line network subsidiary.

Private equity companies TPG Capital and MBK Partners look to be front-runners for Hutchison Global Communications (HGC), which could be the third major fixed-line business to be sold in Hong Kong since the separate acquisitions last year of Wharf T&T and the fixed-line broadband operation of New World Telephone Holdings.

Hutchison Telecom, a unit of tycoon Li Ka-shing’s CK Hutchison Holdings, has seen its shares climb since mid-May, when it reported a fluctuation in its price and trading volume because of media reports about its plan to explore options for HGC, including a potential sale.

The company’s share price closed at HK$3.04 on Tuesday, its highest since reaching HK$3.05 on October 28, 2015.

It is expected to provide some clarity on HGC’s future next week, either on or before the announcement of its interim results for the six months ended June 30, sources said.

San Francisco-based TPG, one of the world’s largest private equity firms, and Seoul-based MBK have partnered to submit a non-binding proposal to Hutchison Telecom, on June 30.

I Squared Capital, an independent global infrastructure investment manager, had also submitted a bid for HGC, according to a Reuters report on Tuesday.

Citing sources, the report said Citic Telecom International Holdings, a subsidiary of mainland China’s largest conglomerate, was expected to decide on submitting its bid by the end of this week.

Fixed-line network operator Hong Kong Broadband Network (HKBN) and mobile operator SmarTone Telecommunications were reported to have withdrawn from the contest because of concerns over HGC’s valuation.

HGC is likely to be valued at US$1.2 billion to US$1.5 billion, Reuters said, citing sources.

Hutchison Telecom, TPG, MBK, HKBN and SmarTone declined to comment, while a representative of I Squared Capital did not immediately respond to requests for comment.

HGC has spent more than HK$10 billion over more than two decades to build an extensive fibre-optic network across Hong Kong. It operates more than 1.4 million kilometres of fibre optic cable, enough to circle the earth over 36 times, according to Hutchison Telecom.

The HGC network covers more than 90 per cent of commercial buildings across the city and almost two million Hong Kong households. It also has cross-border connections to the mainland and links to various overseas submarine cable systems.

It provides the essential “infrastructure backbone” used by a number of mobile network operators, including Hutchison Telecom’s Three Hong Kong, to connect to the public internet. It also runs data centres and a Wi-fi network with more than 20,000 hotspots spread across the city.

A recent Morgan Stanley report has said HGC appears to be significantly undervalued compared with recent fixed-line telecommunications network mergers and acquisitions in Hong Kong.

It estimated Hutchison Telecom was worth six times enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/Ebitda). The enterprise multiple is a widely used metric in the finance industry to measure the value of a company.

When HKBN bought the fixed-line broadband network and online marketing operations of New World Telephone Holdings for HK$650 million last year, Morgan Stanley estimated the value of the acquired business at ten times EV/Ebitda.

It said the former Wharf T&T was purchased at 11.5 times EV/Ebitda when TPG and MBK bought it for HK$9.5 billion from property giant The Wharf (Holdings) last year.

Li is ultimately keen to get a much higher price tag for HGC than what was paid for Wharf T&T, a source said.