Citic Telecom Surges After Buying Macau Monopoly Carrier

Citic Telecom International Holdings Ltd. surged the most in more than two years in Hong Kong trading after agreeing to buy 79 percent of Macau’s monopoly landline operator for $1.16 billion.

The company, a unit of China’s largest state-owned investment firm, rose 13 percent at the close, the most since September 2010. It will buy the additional stakes in Companhia de Telecomunicacoes de Macau, S.A.R.L. from Cable & Wireless Communications Plc and Portugal Telecom SGPS SA, according to a statement yesterday.

Citic Telecom will boost its ownership of CTM to 99 percent as Macau’s growing gambling industry spurs demand for Internet and wireless services. The city, whose casino revenue is more than five times that of the Las Vegas Strip, has 1.5 million mobile-phone users, about triple the size of its population, according to government data.

“As long as the gambling business continues to grow, the telecommunication business will also prosper,” said Bill Fan, an analyst at Guosen Securities HK Financial Holdings. “The deal will enhance the profitability of Citic Telecom.”

Citic Telecom will buy 51 percent of CTM from Cable & Wireless for $749.7 million, according to the statement. The Hong Kong-based company also will buy a 28 percent stake from Portugal Telecom SGPS SA for $411.6 million. Government-controlled Macau Post will retain a 1 percent stake.

End-User Calls

The acquisition will give Citic Telecom its first unit providing services to end users. The company has traditionally focused on offering international roaming and data services to operators, such as China Mobile Ltd.

Citic Telecom will benefit from the rising number of Chinese visitors using roaming services to call home while in Macau, Chief Financial Officer David Chan said in a phone interview. The city has a separate phone regime to the mainland.

“Macau has kept very good growth, mainly benefiting from inbound roamers,” he said. “We will have good, enjoyable growth.”

The company was the biggest gainer among the 355 stocks tracked by the Hang Seng Composite Index. It rose as much as 22 percent earlier in the day.

Macau Services

CTM has the right to operate local and international switched fixed voice and data services in Macau until Dec. 31, 2016, according to the release. That’s automatically renewable until 2021, barring a “serious breach,” it said. CTM also offers mobile-phone services in competition with other operators in the territory.

Macau’s casino revenue increased 14 percent last year to a record 304 billion patacas ($38 billion), according to the city’s Gaming Inspection and Coordination Bureau. Sands China Ltd., Galaxy Entertainment Group Ltd. and Melco Crown Entertainment Ltd. are among casino operators in the former Portuguese enclave, which is the only city in China where such businesses are legal.

The two CTM deals together form the largest acquisition in Macau outside the gambling industry, according to data compiled by Bloomberg. The phone operator had an unaudited net asset value of about 1.7 billion patacas on Nov. 30, according to the statement. It made a profit of 463.3 million patacas in the first half of last year, said the release, which didn’t give a year-earlier figure.

“This is a landmark deal for the company,” Chan said. “It will significantly increase our company size.”

Citic Telecom probably made a profit of HK$484.3 million last year, based on the average of four analyst estimates compiled by Bloomberg News. Sales likely totaled HK$3.6 billion, according to the data.

C&W Sale

Cable & Wireless is selling its CTM stake to reduce its borrowings as it focuses operations on Central America and the Caribbean. The company has also agreed to sell its Monaco and islands businesses to Bahrain Telecommunications Co.

“Following completion of these transactions, we will be a focused pan-America regional operator, with a strong balance sheet, and we intend to pursue new growth opportunities, both organic and inorganic, in this region,” Tony Rice, chief executive officer of Cable & Wireless, said in a separate statement.

Citic Telecom will fund the purchases with existing cash resources and new bank loans, according to its statement. The deal requires approval from the governments of China and Macau, and from company shareholders.

Barclays Plc was the lead financial adviser to Citic Telecom, and CITIC Securities Corporate Finance (HK) Ltd. was also an adviser, according to the statement.

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