Hutchison to Sell Fiber Unit for $1.9 Billion; Shares Surge

(Bloomberg) -- I Squared Capital agreed to pay HK$14.5 billion ($1.9 billion) in cash to buy the fixed-line assets of billionaire Li Ka-shing's Hong Kong telecommunications business, giving the investor group control of a fiber-optic network serving corporate customers and residents.

Hutchison Telecommunications Hong Kong Holdings Ltd. shares surged the most in more than six years on Monday. The company announced the agreement in a stock exchange statement Sunday. The assets included are owned by closely held unit Hutchison Global Communications Ltd. 

For I Squared Capital, founded by former Morgan Stanley Infrastructure Partners dealmakers, the agreement comes about a month after it said it was seeking $5 billion for a global fund to invest in power, transportation and utilities companies. The deal is valued at about 11 times earnings before interest, taxes, depreciation and amortization, said Gautam Bhandari, a partner at I Squared Capital. That compares with the 13 times Ebitda median of 10 telecommunications services deals in developed Asia Pacific markets over the past three years, according to data compiled by Bloomberg.

“We've been looking at telecom infrastructure for quite some time trying to find the right asset,” Bhandari said in a phone interview Sunday. “And this high-quality asset came at the right time.”

Read about how Li managed to sell for higher than the parent's market cap

Credit Agricole SA, Credit Suisse Group AG and Deutsche Bank AG have underwritten about $800 million in financing for I Squared Capital's deal, people familiar with the matter said. The lending may be offered in general syndication later, according to the people, who asked not to be identified because they aren't authorized to speak publicly.

I Squared Capital won out over bidders including a consortium of MBK Partners and TPG Capital, which had been preparing financing for an offer, people familiar with the matter said earlier.

Hutchison Telecommunications shares rose 6.8 percent to HK$3.00 at the close Monday in Hong Kong, after earlier jumping as much as 15 percent, the most intraday since January 2011. The city's benchmark Hang Seng Index gained 1.3 percent.

The agreement follows the sale of Wharf Holdings Ltd.'s Hong Kong internet provider for $1.2 billion to a private-equity buyer group last year. The consortium of MBK Partners and TPG Capital beat out other suitors including HKBN Ltd. and SmarTone Telecommunications Holdings Ltd., people with knowledge of the matter said at the time.

Hutchison Global serves nine of the top 10 global investment banks, as well as a majority of Hong Kong government departments and public hospitals, and is an accredited service vendor with the city's stock exchange, according to its website. The company's fiber-optic broadband network covers more than 1.8 million households and also carries traffic for wireless customers, according to Hutchison Telecom's annual report.

“It's a premium asset with very long-term contracts with mobile operators and large businesses,” Bhandari said. “And this stood out for all the defensive characteristics and good returns.”

Li's company is shedding its fixed-line unit to help focus on new industry segments, including data centers, amid declining residential sales. His business empire from retail to electric power utilities is still shifting its asset mix after a 2015 revamp aimed at diversifying away from real estate and into plane leasing and infrastructure.

Goldman Sachs Group Inc. and Deutsche Bank advised Hutchison, while Credit Suisse advised I Squared Capital.

--With assistance from Annie Lee and Anurag Joshi

To contact Bloomberg News staff for this story: Jing Yang de Morel in Shanghai at jyang543@bloomberg.net, Jonathan Browning in Hong Kong at jbrowning9@bloomberg.net.

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Timothy Sifert

With assistance from Jing Yang de Morel, Jonathan Browning