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.

(Editing by Robyn Mak and Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))