By Tal Barak Harif and Mark Lee, 12th August 2009, www.bloomberg.com
Hutchison Telecommunications International Ltd., controlled by Hong Kong billionaire Li Ka- shing, agreed to sell its 51 percent stake in Israel’s Partner Communications Ltd. to Scailex Corp. for $1.4 billion to focus on its Southeast Asian businesses.
Scailex, an investment company owned by Israeli entrepreneur Ilan Ben Dov, will buy 78.9 million shares for 67 shekels ($17) each, the Israeli company said in a statement. Partner, the Middle East country’s second-biggest provider of mobile-phone services, rose 0.6 percent to 67.37 shekels as of 12:23 p.m. in Tel Aviv trading.
Li, 81, will use the $1 billion pre-tax profit from selling Hutchison Telecom’s biggest unit to increase investments in faster-growing phone markets including Indonesia and Vietnam. The agreement with Scailex comes two years after the Hong Kong company’s sale of a controlling stake in India’s Vodafone Essar Ltd., which generated profit of $8.9 billion.
“Mr. Li has rarely been wrong when it comes to selling his assets,” said Allan Ng, who rates Hutchison Telecom shares “sell” at BOC International Holdings Ltd. in Hong Kong. “He has a very good grasp of timing in these types of transactions.”
Hutchison Telecom, whose shares were suspended today, fell 1.5 percent to close at HK$1.98 in Hong Kong trading yesterday, trimming the stock’s gain this year to 69 percent. The benchmark Hang Seng Index has advanced 42 percent.
The company today posted a first-half loss of HK$285 million ($37 million), compared with a profit of HK$1.17 billion a year earlier, as it increased spending in Indonesia. Hutchison Telecom was expected to post a loss of HK$29 million, the median of three analysts’ estimates in a Bloomberg survey.
Partner, which offers mobile-phone services under the Orange brand in Israel, accounted for 58 percent of Hutchison Telecom’s sales of HK$23.7 billion last year, according to the parent’s earnings announcement in March.
“After Israel goes, their focus will shift toward Indonesia, Vietnam and Sri Lanka,” Lisa Soh, who rates Hutchison Telecom shares “underperform” at Macquarie Group Ltd. in Hong Kong, said before the announcement. “Assuming a transaction is concluded, expectations would be for the company to pay a special dividend.”
Hutchison Telecom sees limited growth potential in Israel, Chief Executive Officer Dennis Lui said on a conference call.
Scailex expects its purchase of the Partner stake to be completed in three months, after all the regulatory approvals are obtained, it said in the statement.
“Our concern is that it seems Ben Dov is overpaying,” Gilad Alper, a Ramat Gan-based analyst at Excellence Nessuah Invesment House Ltd., wrote in an e-mailed note today. “Getting decent returns on his investment in an ex-growth environment will be very difficult,” according to the analyst, who has a “market perform” recommendation on Partner.
Israel had a mobile-phone penetration rate, which measures the number of subscriptions versus a nation’s population, of 128 percent at the end of 2007, compared with Vietnam’s 27 percent, according to data from the Geneva-based International Telecommunication Union.
Ben Dov is the importer and distributor of Samsung Electronics Inc. products in Israel and had no other major interests in the domestic telecom industry before the Partner agreement.
Hutchison Telecom paid most of the $10.7 billion proceeds from the sale of its 67 percent stake in a venture with India’s Essar group through special dividends to shareholders, after deciding against acquiring other phone carriers.
Hutchison Telecom, with units in Israel, Indonesia, Sri Lanka, Thailand and Vietnam, said it will increase capital spending to HK$7 billion this year, from HK$5.1 billion in 2008, as it expands its networks in Indonesia and Vietnam.