PCCW brings in US$870 million for fibre stake

Such a deal has been the subject of industry gossip for some months, but the Hong Kong telco has finally signed on the dotted line with China Merchants Group, having previously been linked with other potential suitors.

The deal could still be a way off completion though. PCCW said in a stock exchange filing on Wednesday that it will complete the transaction by the end of June next year, although admittedly that seems to be a fairly arbitrary date; the operator also used the expression "as soon as reasonably practicable," with regard to satisfying the terms of the deal.

The business in question is Fiber Link Global, which provides copper and fibre access in Hong Kong and the Greater Bay Area. Technically, China Merchants Group will purchase the fibre firm's holding company, which is a wholly-owned subsidiary of PCCW's HKT. It's a complex transaction – China Merchants will pick up the shares through an investment arm – but essentially, PCCW is selling its passive networks business.

The terms of the deal include a reorganisation of PCCW's passive networks business and the establishment of a shared services agreement between the parties. Naturally, the companies also need to obtain the approval of various regulatory and government bodies too.

The reasons behind the deal are in most ways pretty straightforward. On one side, there's an investor keen to throw money at passive infrastructure assets, which is hardly a new idea, although the increasing cost of capital has slowed the market of late. On the other, there's a telecoms operator looking to monetise its assets; again, we have seen this many times in this industry over the past few years.

"The transaction allows HKT to unlock value in its extensive passive network business through the introduction of the Investor as a long term partner as well as to share the future capital expenditure associated with further expansion of the network infrastructure to support growth of the business," PCCW said in a statement; HKT, a Hong Kong-based fixed and mobile operator, is owned by PCCW.

"With new residential development areas in Hong Kong planned, the increasing digital transformation of enterprises and ever closer integration within the Greater Bay Area, Passive Netco, in partnership with HKT and the Investor, will seek to expand its passive infrastructure business to support new service offerings and reach new geographic areas," the operator said, Passive Netco being Fiber Link Global.

"Furthermore, the transaction will enable HKT to strengthen resources in enhancing and broadening its service offerings to consumers particularly in complementary digital lifestyle applications as well as providing innovative and advanced technology solutions to its enterprise customers," the firm added.

In a nutshell, it has secured an investor to help it fund expansion into new territory and new service offerings. But there could be more to it.

Bloomberg analysts pointed to PCCW raising cash to fund media business development, but also suggested there could be a special dividend for shareholders.

And it's also worth noting that this sale is the latest in a series – admittedly a fairly short series – of asset disposals for PCCW. The firm inked a deal with DigitalBridge for the sale of its data centres business three years ago and this time last year announced a partnership deal with Canal+ that included the French TV company taking a 26.1% stake in its Viu streaming service on the back of an initial US$200 million investment.

That's not to say that PCCW is desperately seeking to raise money; as Bloomberg's analysts note, that is not the case. This is clearly more about spotting the right opportunities.

The deal obviously makes sense for PCCW and for China Merchants Group. And for the rest of the industry it shows that investors are still interested in infrastructure.