PCCW out for a spin

Groups line up for stake in offshoot HKT

Americans are among the private equity groups and investment houses lining up to buy a stake in a new media and telecom company being separated out of Hong Kong conglom PCCW.

U.S. investor Texas Pacific Group has made a firm offer for HKT, according to local reports. Other companies known to be circling and expected to make bids by Monday’s deadline included Blackstone, Providence Equity Partners, Kohlberg Kravis Roberts and Macquarie. Bids upward of $3 billion were expected.

PCCW, which is controlled by Richard Li Tzar-kai, has grouped together its fixed-line phones business, which holds a near monopoly position in Hong Kong, with Now TV. Now is a pioneering IPTV broadcaster and tech player that has now overtaken its cable rival as the biggest pay TV provider in the territory.

Move is something of a repeat of the high-profile selloff that Li and PCCW attempted two years ago. That deal was halted by China’s Hong Kong and Macao Affairs Office, which objected to foreign ownership of Hong Kong’s telephone network.

This time, in order to achieve Chinese approval, control is not on offer and PCCW is only selling a 45% stake in HKT. Making the deal harder for investors to judge is the amount of debt that PCCW wants HKT to take on board. Investment bank UBS is advising PCCW on the deal.

It is not clear whether companies from China will join the bidding. China Netcom already owns a 20% stake in PCCW. But were it to raise its stake in HKT, there would likely be objections in Hong Kong of further mainland encroachment on Hong Kong’s separate identity and legal status.

Last year, the unit had revenues of $2.6 billion, up 13% on the previous period. Cash flow as measured by earnings before interest, taxes, depreciation and amortization rose 12% to $899 million.

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