US infrastructure manager I Squared Capital will acquire 100 percent of Hong Kong fixed-line business Hutchison Global Communications for approximately HK$14.5 billion ($1.86 billion; €1.58 billion).
The transaction is the first acquisition by the US firm’s second global infrastructure vehicle, which was launched earlier this year and is now on its way to raise $5 billion of capital. The mid-market vehicle is expected to hold a first close in the next couple of months.
HGC is owned by Hong Kong-listed Hutchison Telecommunications, part of Hong Kong tycoon Li Ka-shing’s CK Hutchison Group. The company owns and runs more than 1.4-million kilometres of optical-fibre network, coupled with four cross-border routes connected to China, as well as multiple submarine and terrestrial cable systems to international markets. It is also one of the largest-scale Wi-Fi service providers in the city.
The deal – which is due to close by October, pending shareholder approval – values the telecom business at 11 times EDITBA. Upon completion, HGC will remain a key supplier of fixed-line services to Hutchison Telecommunications, while the latter intends to use the proceeds from the transaction for general working capital purposes and investment in the mobile business.
I Squared sees the telecom fiber business as a “very high quality asset”, which not only owns an extensive fibre network in a metropolitan and commercial hub like Hong Kong, but is also supported by a diversified customer base under long-term contracts, according to partner Guatam Bhandari. The business is expected to offer stable revenue and good prospects for future growth, based on its position as a provider of high-speed internet connectivity to China and more than 130 international markets.
“The asset also provides the opportunity to benefit from the next level of back-haul traffic growth when 5G is adopted,” Bhandari told Infrastructure Investor.
“The deal reflects the changing shape of the telecoms market, where there has been significant activity recently in Hong Kong and across Asia Pacific. Telecoms companies are taking different strategies in order to invest in network upgrades and digital advances. Infrastructure funds and private equity are seeing increasing opportunities in network infrastructure,” said Hilary Lau and Mark Robinson, who led a legal team of Herbert Smith Freehills to advise I Squared on the deal.
It has been reported that private equity firms TPG and MBK Partners, as well as local player Hong Kong Broadband Network, were among the suitors for Hutchison’s fixed-line business. Last October, TPG and MBK agreed to jointly acquire Wharf T&T, a fibre-optic network operator for the commercial market, also based in Hong Kong, for HK$9.5 billion.
Last week, two of Li Ka-shing’s companies, Cheung Kong Infrastructure and Cheung Kong Property Holdings, formed a team to buy Ista, a German smart-metering firm, from CVC Capital for €4.5 billion.