Hong Kong broadband buyout has a lot on the line

HKBN

22/01/2025 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Chan Ka Sing
       HONG KONG, Jan 22 (Reuters Breakingviews) - All eyes are
on China Mobile's  600941.SS  latest deal in Hong Kong. The $200
billion state-owned giant has offered to buy internet provider
HKBN  1310.HK , thus becoming the latest company to heed
Beijing's calls for closer integration between the mainland and
the financial hub. Yet a U.S.-based fund may be readying a
higher offer, Reuters reported earlier this month, citing
sources. A proper bidding war would show how open the financial
hub is to Western capital.
    On first glance, China Mobile's bid looks like a done deal.
The target has been grappling with declining sales and last year
its shares slumped as much as 85% below a 2020 peak. The offer
values the company at almost HK$6.9 billion ($882 million) - a
decent 40% premium to the stock's undisturbed price in November,
when China Mobile first made public its interest. The Canada
Pension Plan Investment Board and TPG, which hold a combined 25%
stake in HKBN, have already committed to support China Mobile's
takeover.
    A deal offers the buyer some much-needed diversification.
Despite being the world’s largest carrier by subscribers, China
Mobile has a tiny presence outside its home market. Owning HKBN
would give it more than a one-third share of the local broadband
market.
    Miami-based I Squared Capital's potential interest looks
more than a nuisance. The U.S. infrastructure investment fund,
which manages more than $40 billion in assets and already owns a
rival broadband operator in Hong Kong, is weighing a higher
offer that could value HKBN at up to $1 billion, per the Reuters
report.
    That a U.S. fund would even consider taking on one of
China's largest state-owned enterprises for control of a
critical infrastructure asset on Chinese soil is remarkable. In
2006, TPG-owned Newbridge Capital's plans to buy Hong Kong's
largest fixed-line operator were derailed following opposition
from a state-owned shareholder.
    But a bidding war would give Hong Kong's international
reputation as a global financial centre and free market a boost.
Geopolitical tensions and Beijing's tightening control over the
city have resulted in a less international city, as
multinational firms pull back: there were just 136,000 staff
working in Hong Kong-based regional headquarters last year, down
30% from 2019, official data show.
    HKBN shares are currently trading at China Mobile's offer,
implying that markets do not expect a higher bid to emerge. Hong
Kong could benefit from an unwanted gatecrasher.
    
    CONTEXT NEWS
   Miami-based infrastructure investment firm I Squared Capital
is weighing an offer for Hong Kong-listed broadband operator
HKBN, Reuters reported on Jan. 15, citing two people with
knowledge of the deal. 
    State-owned telecommunication firm China Mobile made an
offer in December that would value HKBN at HK$6.86 billion ($882
million), or HK$5.23 per share. I Squared Capital’s offer is set
to trump that, Reuters reported, but the private equity firm is
not keen to pay more than HK$6 per share.

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Takeover talks have boosted HKBN's stock    https://reut.rs/4jBDdHY
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 (Editing by Robyn Mak and Aditya Srivastav)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  
KaSing.Chan@thomsonreuters.com))