Hong Kong's Hutchison group has sold off its fiber and longhaul unit, Hutchison Global Communications (HGC), to New York-based I Squared Capital.
I Squared will pay HK$14.5 billion ($1.9 billion) for the business, which includes a global fiber network, a Hong Kong retail broadband network and several cross-border links into China.
The deal, which had been rumored for months, once again reveals Hutchison Whampoa Ltd. (Hong Kong: 0013; Pink Sheets: HUWHY)'s willingness to exit a business at the right price.
It runs counter to current wisdom that the data boom means mobile operators need their own fiber. Instead, it looks to be driven by the consolidation of the Hong Kong market and the low returns from the fixed-line business.
It is the third fixed-line or broadband access network transaction in Hong Kong in the last 18 months. Enterprise comms and pay-TV operator Wharf T&T Ltd. was sold to private equity firms TPG Capital and MBK for $1.2 billion last October. Consumer broadband operator Hong Kong Broadband Network Ltd. (HKBN) picked up corporate specialist New World Telephone for $84 million in February 2016.
It said the fixed-line and mobile businesses had been operating relatively independently.
"We therefore do not expect this transaction to have any material impact on the remaining mobile business. The HGC Group will remain a key supplier of fixed-line services to the company," it said.
It would use the proceeds of the sale for "general working capital" and investment in the mobile business.
HGC revenue for the first half of 2017 was up 3% to HK$2.2 billion, with EBITDA just 2% higher at HK$682 million. More than 80% of revenue is from corporate and international services -- its extensive local broadband access network accounts for just 13%.
HGC is chaired by Li's chief telecom lieutenant, Canning Fok, who has traded in and out of telecom operators for the last two decades.
His biggest deals included the sale of the UK mobile business Orange in 1999 (before Fok bought his way back into the UK market through the 2000 spectrum auction) and the disposal of the India business to Vodafone Group plc (NYSE: VOD) in 2007. Two years ago he tried to buy O2 from Telefónica but was blocked by the EU regulator.
Hutchison Telecom's HKSE share price closed down 6% at HK$3.00 on Monday, but has risen from HK$2.23 in March on speculation about the HGC sale.
I Squared, which specializes in energy, utilities and transport, will acquire 100% of HGC through its ISQ Fund II. The deal is expected to be settled by October.
I Squared Capital partner Gautam Bhandari said fresh capital would enable the company to develop new solutions to meet demand for high-speed infrastructure "throughout the region and beyond."
— Robert Clark, contributing editor, special to Light Reading