I Squared agrees $1.9b deal for Hutchison's fixed-line business

ISQ Global Infrastructure Fund II will take a 100% equity stake in Hutchison Global Communications (HCG) and also assume responsibility for an associated shareholder loan, according to a statement released by the seller. It will become the second Hong Kong fixed-line asset to enter PE ownership in 12 months, following the MBK Partners and TPG Capital’s HK$9.5 billion acquisition of Wharf T&T.

Launched in 1995, HGC operates a 1.4 million-kilometer fiber network that connects 14,200 buildings in Hong Kong and supports a Wi-Fi service network with more than 25,000 hotspots. The company has four cross-border routes integrated with major telecom operators in mainland China as well as multiple sub-marine and terrestrial cable systems that extend its reach into other continents.

Much of HGC’s revenue is under long-term contracts with customers including major mobile providers in the region, which use the company as a backhaul service provider that carries data to and from global networks. It also offers IT services to the corporate market, working with clients ranging from financial institutions to hospitals; operates a broadband network that covers more than 1.8 million homes in Hong Kong; and owns two data centers.

HGC generated HK$4.13 billion in revenue for the 12 months ended December 2016, up 4% year-on-year, while EBITDA dropped 2% to HK$1.25 billion. International and local carriers accounted for 53% of revenue, with the corporate and residential markets contributing 31% and 13%, respectively. The division has been focusing on penetrating new industry segments and leveraging its data center capabilities and network infrastructure to develop high-security cloud solutions.

“With I Squared Capital’s investment, HGC will continue to provide the same quality of service that mobile telecommunication providers, corporate and residential customers have come to expect. Fresh capital will also enable the company to develop new solutions to meet the ever-increasing demand for high-speed information infrastructure throughout the region and beyond,” Gautam Bhandari, a partner at I Squared, said in a separate statement.

Hutchison Telecommunications said the divestment would enable the company to focus on its mobile business and unlock value in HGC that it believes has not been fully reflected in the share price in recent years. The mobile division posted HK$8.33 billion in revenue in 2016, down 55% year-on-year due to reduced demand for new smart phones. Over the same period, service revenue fell only slightly and subscriber numbers increased. HGC will continue to provide services to Hutchison Telecommunications.

The Wharf T&T deal, announced last October, was also a non-core divestment. The company is Hong Kong’s second-largest fixed-line service provider for business customers in Hong Kong, but only accounted for 9% of parent company The Wharf Holdings’ overall revenue.

I Squared, which targets energy, utilities and transportation assets in the Americas, Europe and select high-growth economies, closed its debut global infrastructure fund in 2015 at $3 billion. In Asia, the firm has a dedicated toll road and transportation investment platform for the India market, and it has also built up exposure to wastewater treatment in China and renewable energy in India.

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• Topics
• Greater China
• Buyouts
• Infrastructure
• Infrastructure
• Technology
• Hong Kong (China)
• I Squared Capital