Private equity bidding for PCCW, despite hurdles

By Michael Flaherty and Vinicy Chan

HONG KONG (Reuters) - The Blackstone Group and Providence Equity Partners are among the private equity firms pursuing a stake in a company to be spun-out from PCCW, the Hong Kong phone company controlled by billionaire Richard Li.

PCCW's new media and telecom company, HKT Group, could be worth more than $8 billion, including the debt it plans to issue, sources involved with the deal say. Minus debt, some sources say the asset would be worth more than $3 billion.

But financing the deal, completing it, and earning a sizable return later won't be easy, bankers working on the deal say, in part because HKT wants to maintain an investment grade rating on its debt.

Would-be buyers are attracted by PCCW's steady cash flows and commanding market position at a time when big, attractive buyout targets are hard to find across the region.

Expressions of interest in the auction for a 45 percent stake are due on Monday.

In addition to making the numbers stack up, bidders will have to get comfortable with a complex mix of players, including the Chinese government and Li, the younger son of Hong Kong's richest man, Li Ka-shing.

"I think a lot of sponsors have put PCCW in the 'too hard to make work' basket," said an investment banker close to the process, referring to private equity firms.

UBS AG is advising PCCW on the deal. The two took the rare step of posting a 23-page expressions of interest document online for all to see, hoping to show that the process will be transparent and open to all interested parties.