Shares in Citic Telecom surged 13.4 percent on Monday after it agreed to buy a 79 percent stake in a Macau telecom company from Cable & Wireless Communications and Portugal Telecom for $1.2 billion, giving the Chinese company greater access to fast-growing Macau.
Macau, the world's largest casino market, has been performing strongly for CWC mainly due to tourism, but the London-listed company is exiting some non-core markets to focus on the Caribbean and Central America.
Citic Telecom had already acquired 20 percent of Companhia de Telecomunicaes de Macau SARL (CTM) in 2010. The latest deal will give it 99 percent in Macau's leading telecoms company. Government-owned Macau Post will continue to own a 1 percent stake, the two Chinese companies said on Sunday.
Citic Telecom and Citic Pacific are part of China's state-owned conglomerate Citic Group, with business spanning financials to mining. Citic Telecom is focused on China and Hong Kong, but is expanding into international markets, it said in the statement.
Citic Telecom has also been diversifying its customer and services profile from wholesale to become more consumer-focused, the statement said.
CWC sold its 51 percent stake in CTM for $749.7 million, it said in a separate statement. The sale comes after the British based group, which traces its history back to the 1860s, sold assets in Monaco and some islands to Bahrain Telecommunications in December in a deal worth up to $1 billion.
Portugal Telecom said it would sell its 28 percent stake in CTM for $412 million and also signed a technology partnership with Citic.
"This sale reinforces even more our financial flexibility," Zeinal Bava, CEO of Portugal Telecom, said. The CEO said the sale would allow the group to focus investments in strategic areas: Portugal, Brazil and Africa.
The deal values Macau's CTM at $1.47 billion including debt and represents an enterprise value to core earnings multiple of 8.9 times based on results for the 12 months to 31 March 2012, CWC said. CTM had a net cash balance of $70 million as at 31 December 2012.
CTM is engaged in mobile, fixed line and broadband services in Macau and is a major supplier of telecom services to corporate customers in Macau.
Located on China's southern coast, Macau, a special administrative region like neighbouring Hong Kong, raked in $38 billion in annual gambling revenues in 2012 after monthly revenues for December hit a record.
Citic Telecom plans to fund the acquisition with internal resources and has secured some funding commitments from a group of banks and other financial institutions, it said. It may also consider raising fresh equity or bonds at a later stage to refinance the current facilities, it added.
CTM reported revenue of $524 million and profit before tax of $133 million in the 12 months to March 2012. It had $323 million of gross assets, and 460,000 mobile, 173,000 fixed line and 142,000 broadband customers, at 30 September 2012.
Barclays Bank is acting as the lead financial adviser and CITIC Securities Corporate Finance (HK) Ltd is acting as the financial adviser to Citic Telecom. CITIC Securities Corporate Finance is also advising Citic Pacific.
J.P. Morgan Cazenove advised CWC.