Citic and GE offer to delist AsiaSat

Subsidiaries of Citic and GE Capital offer to privatise AsiaSat at an outlay of $288 million.
Subsidiaries of Citic Group and GE Capital have jointly launched an offer to privatise AsiaSat at a total cost of HK$2.2 billion ($288.4 million).

Asia Satellite Telecommunications Holdings (AsiaSat) provides satellite transponder capacity in Asia to the TV broadcasting, telecom, internet and multimedia markets in Europe, the US and Asia. It is owned 69% by Bowenvale, a company which was jointly owned by the Citic Group and SES Luxembourg.

On Wednesday (February 14), SES announced a Ç1.2 billion ($1.6 billion) deal to buy out GEÆs shareholding in SES in exchange for a basket of assets and cash. Included in the basket, which will now be owned by GE, is the SES stake of 49.5% in Bowenvale, which represents a 34.1% interest in AsiaSat.

Pursuant to GEÆs transaction with SES, a Citic Group subsidiary, Able Star and a GE Capital subsidiary, GE Equity, have created a wholly owned partnership company called Modernday to effect the delisting of AsiaSat. Modernday yesterday announced an offer to AsiaSat shareholders to buy them out at a price of HK$18.30 per share and delist AsiaSat from the Hong Kong and New York stock exchanges.

Trading of AsiaSat is mainly concentrated in Hong Kong. As per the company's Hong Kong Stock Exchange filings, shareholders holding more then 1% include Aberdeen Asset Management with 5.4%, Colonial First State Group with 5.3%, and First State Investment with 5.05%.

Of the total consideration of HK$2,235 million, HK$2,221 million is on account of shares outstanding and $14 million is on account of options. In case all options are exercised prior to the record date, the outflow will increase to HK$2,309 million.

The offer price of HK$18.30 per share and HK$183 per ADS (each ADS represents 10 shares) is at a premium of 30.7% over the HK$14 closing price on the day before the shares were suspended and a premium of 22% over the highest closing price of approximately HK$15 over the past year. It represents an implied price earnings multiple of 19.5 times reported EPS of HK$0.94 cents and a premium of 74% to the NAV (net asset value) as at December 31, 2005.

The buyers have stated that the offer represents their ôbest and final offerö which means they are unlikely to increase it unless a competing bidder shows up. Sources close to the deal say the buyers have launched the offer at a price which provides shareholders with a reasonable return and therefore they don't expect GE and Citic to revise the offer.

In the offer document, Modernday states ôdue to persistent over-supply of transponder capacity and the slow introduction of new applications in the region, the Asia-Pacific satellite market remains very competitive. As a result, the CompanyÆs share price has not performed satisfactorily.ö It goes on to cite the decline in the price of AsiaSat shares by 11.9% over the last three years compared to an increase of 51.1% in the Hang Seng Index over the same period. The offerors suggest earnings will continue to be under pressure in the short- to medium-term and the privatisation will enable AsiaSat to pursue business development with greater flexibility and relieve it of the "heavy financial and administrative burden of dual listings".

Analysts comment that financials of the company have been under pressure because the trading environment for the satellite sector is witnessing intense competition and price pressure. Thus, improvements in capacity utilisation of AsiaSat's satellites are not translating into across-the-board revenue growth.

Morgan Stanley is advisor to Modernday.
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