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.
Takeover talks have boosted HKBN's stock https://reut.rs/4jBDdHY
(Editing by Robyn Mak and Aditya Srivastav)
((For previous columns by the author, Reuters customers can click on CHAN/ KaSing.Chan@thomsonreuters.com))
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.