Pacnet Owners Said to Seek $1 Billion Valuation in Revived Sale

Pacnet Ltd.’s owners have revived a sale of the undersea cable operator and started reaching out to potential buyers, according to people familiar with the matter.

Pacnet investors, including Ashmore Investment Management Ltd., Spinnaker Capital Ltd. and Clearwater Capital Partners, are working with Credit Suisse Group AG on the sale, the people said. The funds are seeking a valuation of about $1 billion including debt, said two of the people, asking not to be identified as the talks are private.

Citic Telecom International Holdings Ltd., a unit of China’s largest state-owned investment firm, is among companies eyeing Pacnet, people with knowledge of the matter said. The Hong Kong-based company is also considering an acquisition of undersea cable assets owned by Reliance Communications Ltd., according to two people.

Pacnet, which owns cables connecting Asia and the U.S., is seeking a buyer as competition with regional phone companies intensifies. Two submarine cable systems owned by rivals started operations last year, with a third due to start before the end of 2014, according to Fitch Ratings.

Citic Telecom “engages in a wide range of discussions with interested parties all over the world from time to time regarding potential cooperation,” the company said in a May 23 exchange filing, after the Financial Times reported Citic Telecom is in talks with Reliance, citing unidentified people. A spokeswoman for Citic Telecom couldn’t immediately comment on its interest in Pacnet.

“We are not involved in an auction process,” Pacnet Chief Executive Officer Carl Grivner said in an e-mailed statement. A spokeswoman for Ashmore declined to comment and spokesmen for Clearwater and Spinnaker said they couldn’t immediately comment.

Declining Sales

Pacnet, with headquarters in Hong Kong and Singapore, owns more than 46,000 kilometers (29,0000 miles) of submarine cable across Asia and the Pacific Ocean. Investments by hedge funds in 2008 valued the company at about $2 billion, then-Chief Executive Officer Bill Barney said at the time.

The company considered an initial public offering in 2011 and attempted a separate sale process, people familiar with the matter said previously. Pacnet was formed through the merger of Asia Netcom Corp. and Pacific Internet Ltd.

Pacnet’s earnings before interest, taxes, depreciation and amortization, excluding some items, rose 32 percent to $115.2 million last year after it cut some lower-margin businesses, Moody’s Investors Service wrote in a March report. Its sales fell 9 percent to $471.6 million, according to Moody’s.

The company won’t report any free cash flow for the next one to two years, Fitch Ratings said in a separate report that month. Moody’s rates Pacnet’s debt B2, five levels below investment grade, while Fitch has an equivalent B rating on the company.

Before it's here, it's on the Bloomberg Terminal.