HKT to Buy CSL for $2.43 Billion to Bolster HK Mobiles

HKT Ltd., a unit of billionaire Richard Li’s PCCW Ltd. (8), agreed to buy Telstra Corp. (TLS)’s Hong Kong mobile-phone unit for $2.43 billion to boost scale in a market with more than twice as many subscribers as people.

HKT will buy Telstra’s 76 percent stake in CSL for A$2 billion ($1.8 billion) and the 24 percent held by New World Development Ltd., according to a filing to the Australian stock exchange. PCCW shares surged the most in almost two years.

The deal enables Li to regain ownership of mobile-phone assets he sold more than a decade ago and gives his company two operators in a market where five carriers compete for customers among 7.2 million people. Telstra is retreating from Hong Kong, where it has lost more than A$2 billion from writing down assets after buying wireless and cable businesses.

“CSL can bring a lot of synergy with PCCW’s current network, which should greatly improve its market penetration in Hong Kong,” said Victor Yip, an analyst at UOB-Kay Hian Holdings Ltd. “PCCW has tried but had little success in bringing in high-end users in the past few years. This acquisition, if successful, could help PCCW achieve that goal.”

PCCW jumped 6 percent to HK$3.36 at the close of trade in Hong Kong. HKT Trust and HKT Ltd., which trade together as a stapled security, surged 12 percent. Telstra rose 1.8 percent to A$5.20 in Sydney, extending gains this year to 19 percent.

Photographer: Daniel J. Groshong/Bloomberg

A man walks inside a One2Free store, owned by CSL Ltd., in Hong Kong. Close

A man walks inside a One2Free store, owned by CSL Ltd., in Hong Kong.

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Photographer: Daniel J. Groshong/Bloomberg

A man walks inside a One2Free store, owned by CSL Ltd., in Hong Kong.

Competitors Surge

The deal is subject to approval from regulators in Hong Kong and shareholders of HKT and PCCW, Telstra said. The combined market share of the two operators is about 31 percent, HKT said in an e-mailed statement.

HKT and CSL compete with Hutchison Telecommunications Hong Kong Holdings Ltd. (215), SmarTone Telecommunications Holdings Ltd. (315) and China Mobile Ltd. (941)

SmarTone surged 19 percent and Hutchison Telecommunications climbed 11 percent on expectations the deal would result in less discounting to win users in Hong Kong.

“With fewer market players, presumably competition will come down a bit, especially given that CSL has always been an aggressive player,” said Zoe Zhu, an analyst at BNP Paribas SA.

Hong Kong had 16.7 million mobile-phone subscriptions as of June, representing a penetration rate of 233 percent, according to government data. Smartphone use in the territory is 87 percent, tying with Singapore for the highest penetration in the world, according to data published by Nielsen in September.

Photographer: Jonathan Alcorn/Bloomberg

Richard Li, chairman of PCCW Ltd and HKT Ltd. Close

Richard Li, chairman of PCCW Ltd and HKT Ltd.

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Photographer: Jonathan Alcorn/Bloomberg

Richard Li, chairman of PCCW Ltd and HKT Ltd.

Telstra Writedowns

Li is chairman of PCCW and owned 28 percent of the company as of July last year, according to a regulatory filing. PCCW holds at least 63 percent of HKT, according to data compiled by Bloomberg.

Richard’s father Li Ka-shing is Asia’s richest man with a net worth of $29.4 billion, according to the Bloomberg Billionaires Index.

Melbourne-based Telstra, Australia’s biggest phone company, completed the acquisition of a 60 percent stake in the Hong Kong mobile business in 2001 before acquiring the remaining 40 percent the next year. In December 2005, Telstra agreed to merge CSL with New World PCS Ltd. Ltd. to create Hong Kong’s biggest mobile phone company.

Hong Kong-based New World Development is a property developer controlled by the family of billionaire Cheng Yu-tung.

Telstra paid more than A$4 billion for assets in Hong Kong and Asia between 2000 and 2002 before cutting the value to A$1.63 billion.

Job Cuts

Telstra’s exit follows its decision in September to cut about 1,100 jobs by mid-2014 in Australia to boost productivity. The company has expanded overseas, setting up nine new operations in the past 18 months. It also raised its stake in Autohome, an online automobile website in China and listed it on the New York stock exchange this month.

Photographer: Lam Yik Fei/Bloomberg

Pedestrians walk past a PCCW Ltd. store in Hong Kong. Close

Pedestrians walk past a PCCW Ltd. store in Hong Kong.

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Photographer: Lam Yik Fei/Bloomberg

Pedestrians walk past a PCCW Ltd. store in Hong Kong.

“This is an interesting move for Telstra as the company has been pursuing growth opportunities in the lucrative Asian market,” Ben Le Brun, Sydney-based market analyst at OptionsXpress, a unit of San Francisco-based financial services firm Charles Schwab Corp., said in e-mailed comments. “The A$2 billion generated from the sale would fuel further calls for the company to return excess capital to shareholders.”

Revenue from Telstra’s Hong Kong business grew 17.6 percent to A$1.01 billion in the year ended June and made up about 60 percent of the company’s international revenue, according to company filings released Aug. 8.

Telstra will post a profit of about A$600 million on the sale and will add to the company’s free cash flow, which is forecast to be as much as A$5.1 billion in the year ending June 30, it said.

“This is the right opportunity for Telstra to maximize our return on this successful asset,” Telstra Chief Executive Officer David Thodey said in the statement. “The team is focused on refining and enhancing our strategy across Asia and identifying further opportunities to build our capability in the region.”

To contact the reporters on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net; Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Robert Fenner at rfenner@bloomberg.net

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