(Reuters) - Hong Kong’s residential broadband provider HKBN Ltd (1310.HK) would buy fixed-line operator WTT HK in a deal that valued the business at HK$10.5 billion ($1.34 billion) including debt, the companies said on Tuesday.
WTT is jointly owned by private equity firms TPG Capital Management LP and MBK Partners Inc.
As part of the deal, HKBN will issue the private equity firms a combination of its shares and vendor loan notes for WTT shares worth roughly HK$5.5 billion. It will also assume WTT’s existing debt, adding up to around HK$5 billion by end of June.
After the deal closes, MBK Partners and TPG will each own 11.66 percent stake in HKBN, in addition to a non-voting, couponless vendor loan note valued at HK$970.5 million ($124 million).
The two private equity firms would end up owning close to 15 percent of WTT each once the vendor loan notes are converted, according to people close to the transaction.
HKBN shares fell as much as 5.5 percent to HK$11.58 on Wednesday, the lowest since July 2016. Nevertheless, its stock price had risen 24 percent this year as of Tuesday’s close, and reached an all-time high on July 23.
The deal marks a partial exit for MBK and TPG, whose consortium won an auction in October 2016 to acquire WTT from Hong Kong tycoon Peter Woo’s Wharf Holdings Ltd (0004.HK) for HK$9.5 billion ($1.22 billion). HKBN was also bidding for the asset at the time.
The private equity firms saw synergy and value from an experienced operator like HKBN, said the people, who declined to be named as they were not authorized to speak to the media.
“WTT and HKBN together would provide a viable alternative to market leader HKT,” said one of them.
HKBN is the second largest provider of residential broadband services in Hong Kong, while WTT focuses on providing telecommunication services to larger corporate and wholesale clients.
The transaction is subject to the approval of HKBN shareholders and regulatory approval, and is expected to close in the first quarter of 2019, the companies said in the statement.
Goldman Sachs is the financial advisor to MBK and TPG, while JP Morgan is advising HKBN.
Reporting by Kane Wu in Hong Kong and Sonam Rai in Bengaluru; Editing by Sunil Nair