Private equity firms weigh bid for HKBN

Several private equity firms are reportedly weighing a tilt at well-performed Hong Kong telco HKBN.

The would-be bidders – New York-based KKR, Stonepeak and regional PE firm PAG – have been conducting due diligence, Bloomberg reported.

HKBN's stock is up 2.6% since the news broke Wednesday and 14.6% over the past five days. It has a market cap of $1.65 billion and enterprise value of around $2.9 billion.

With telecom and data center assets increasingly in demand, there's no doubting the value of HKBN's infrastructure.

In the running: New York-based KKR, Stonepeak and regional PE firm PAG are to bid.
 (Source: HKBN)
In the running: New York-based KKR, Stonepeak and regional PE firm PAG are to bid.
(Source: HKBN)

But it is an employee-owned company with a distinctive culture that an external owner could find challenging to navigate.

HKBN's 470 co-owners may enjoy the payday but they likely won't be feeling the same pressure to perform under a new owner.

The highly incentivized internal culture has powered it from fringe broadband provider to publicly listed full service telco in a crowded market in less than two decades.

Most extensive fiber network

Today HKBN has Hong Kong's most extensive fiber network and the second largest broadband customer base, along with data center assets and growing MVNO and e-commerce businesses.

It says it has customer relationships with one-in-three residential households and half of all active Hong Kong companies.

The company reported solid numbers in its interim filing last month, with a 9% increase in first-half revenue and a 1% rise in adjusted EBITDA in a tough environment. It said the higher revenue of HK$6.80 billion (US$866.6 million) was mostly due to a jump in smartphone and enterprise solution sales.

Besides its employee co-owners, HKBN has had investment firms MBK Partners and TPG Capital on its share register since acquiring rival Wharf NTT from them for HK$10.5 billion ($1.3 billion) in 2018.

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The deal made HKBN the largest enterprise services player after market leader HK Telecom.

It has since struck enterprise partnerships with companies such as Microsoft, Alibaba and AWS and expanded its offerings to include mobile, e-commerce and financial services.

Singapore-headquartered PAG has $45 billion assets under management and recently formed a dedicated company, Flow Digital, to manage its regional real estate and digital assets.

Stonepeak has a $48.5 billion portfolio, including broadband and cloud assets in North America and a Singapore-based data center firm, Digital Edge (see Stonepeak closes Astound Broadband deal).

KKR has two tower companies in its Asian telecom portfolio – Philippines' Pinnacle Towers acquired last year and India's Indus Towers that it purchased in 2017.

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— Robert Clark, contributing editor, special to Light Reading

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