PCCW buys Telstra's Hong Kong mobile unit

HKT shares rose 12.5 per cent on Friday, while PCCW was up 6 per cent. Telstra gained 1.8 per cent.

Richard Li's PCCW is buying back the Hong Kong mobile business it sold to Australian rival Telstra just over a decade ago when the television, internet and telecoms group was labouring under a hefty debt burden and writedowns from bad dotcom bets.

PCCW's subsidiary HKT will pay $2.4bn for CSL, which owns the 1010 and one2free mobile brands, in a deal that will give it a 31 per cent share of Hong Kong's mobile telecoms market and reduce the number of providers to four from five.

Hong Kong is one of the most saturated mobile markets in the world with 16.7m subscribers, equivalent to 2.3 phones per person, according to government data.

Mr Li, son of Asia's richest man, Li Ka-shing, said the deal would help HKT achieve long-term dividend growth. Alex Arena, HKT's managing director, said it was good to "bring CSL back into the HKT family" and that it would be a big boost to its existing mobile business, which is currently number five in the market.

"It is very hard to organically grow a business and get scale economies in a market that's so full," he said. However, he added there was still plenty of growth to be had in Hong Kong.

David Thodey, Telstra's chief executive, said Asia remained an important part of Telstra's strategy, but that it was a good time to lock in profit from CSL's recent growth.

"CSL has been a strongly performing business; the compound annual revenue growth rate was 9.4 per cent over the past three years and we have gained market share," he said. "However, there are a number of dynamics in the Hong Kong mobiles market that mean this is the right opportunity for Telstra to maximise our return on this successful asset."

Telstra bought the company from HKT in two stages in 2001 and 2002 for about $1.5bn, when it had about 1m customers. It now has more than 5m.

At the time, valuations in the telecoms world were collapsing as a result of the bursting of the dotcom bubble. PCCW was laden with almost $5bn worth of loans it had taken out to fund the purchase of HKT from Cable & Wireless. It was also forced to make a series of writedowns on bad internet investments, resulting in a record full-year loss of $885m in 2001.

Telstra owns just over 76 per cent of CSL and will receive A$2bn ($1.8bn) for its sale. HKT will also pay $600m for the remaining stake of nearly 24 per cent, which is held by New World Development, part of the Chow Tai Fook Jewellery empire of Hong Kong tycoon Cheng Yu Tung.

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The Australian telecoms group also owns a controlling stake in Autohome, the owner of Chinese car sales websites, which listed on the New York Stock Exchange earlier this month with a market value of around $3.2bn.

Telstra said the sale of CSL is expected to generate a profit of around A$600m, with net proceeds incremental to the company's free cash flow guidance of A$4.6bn to A$5.1bn in 2014.

The deal is subject to regulatory approval in Hong Kong.

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