Investors have reacted positively to Citic Telecom’s acquisition of Macau’s only full-service telecoms company, CTM.
Citic Telecom’s shares have gained 12.5% in Hong Kong since it announced the deal on Sunday, closing at HK$2.52 on Tuesday. It already owns a 20% stake in CTM and is paying $1.16 billion to buy Cable & Wireless Communications’ 51% controlling stake and Portugal Telecom’s 28% holding. The Macau government owns the last 1% through Macau Post.
The deal values CTM at $1.47 billion, or 8.9 times its earnings (before interest, taxes, depreciation and amortisation) based on its last full financial year, when it reported revenue of $524 million, earnings of $165 million and profit before tax of $133 million.
“The [Citic] group has been placing great emphasis on Macau as a strategic market,” said Xin Yue Jiang, chairman of Citic Telecom, in a statement. “The increase in Citic Telecom’s stake in CTM facilitates our long-term business expansion, generates solid synergies with our business integration and enables us to realise higher business growth.”
CTM operates mobile, fixed-line and broadband services in Macau, and also supplies enterprise telecom services to corporate customers in the city. Its main assets are a concession to operate the fixed-line network until 2022 and licences to provide 2G and 3G mobile services until 2015.
As of September 30 2012, CTM had $323 million of gross assets, and 460,000 mobile customers, 173,000 fixed-line customers and 142,000 broadband customers.
Citic Telecom has also agreed a three-year strategic alliance with Portugal Telecom to share knowledge and jointly identify investment opportunities in information and communication technology.
Cable & Wireless is selling its stake to pay down debt and to free up capital for investment in the Americas, where it now intends to focus.
“Cable & Wireless was a founding shareholder in CTM in 1981 and it has been one of the outstanding businesses within our group during this time,” said Tony Rice, Cable & Wireless chief executive, in a statement. “As an existing shareholder, Citic Telecom knows CTM well and we’re confident it will continue to operate the business successfully.”
Rice added that the company intended “to pursue new growth opportunities, both organic and inorganic” in Asia once its balance sheet was repaired.
Citic Telecom said that it expects to fund the acquisitions with its existing cash resources and new bank loan facilities, and that it has already obtained loan facilities from a group of banks and other financial institutions to cover all of its funding requirements.
Barclays is acting as the lead financial adviser and Citic Securities is acting as the financial adviser to Citic Telecom on the acquisitions. Citic Securities is also advising Citic Pacific on the effect of the acquisitions as financial adviser.