Chinese investor sells stake in Hong Kong-US cable for $160m

Chinese investor sells stake in Hong Kong-US cable for $160m

PLCN map.jpg
Pacific Light Cable Network | PLCN

The Chinese company that part-owns a controversial cable from the US to Hong Kong is selling its stake for US$160 million

The Chinese company that part-owns a controversial cable from the US to Hong Kong is selling its stake for US$160 million.

The Dr Peng Telecom Media Group, listed on the Shanghai stock exchange, has announced the transfer of its stake in the Pacific Light Cable Network (PLCN – see map) to Meister United, registered in the British Virgin Islands.

Dr Peng adds that it will make a loss on the transaction of 1.72 billion Chinese yen, equivalent to $272 million.

PLCN, in which Google and Facebook owner Meta have stakes, was due to connect the US, the Philippines and Taiwan, and then on to Hong Kong.

The future of the cable has been in doubt after the US Federal Communications Commission (FCC) initially refused a licence for the Hong Kong end of the system.

However, in December 2021 the US appeared to have second thoughts, as Reuters news agency reported that the FCC was set to approve the cable all the way to Hong Kong.

However some observers have pointed out that the cable could be re-engineered into PLCN East, running from the US to the Philippines or Taiwan, and PLCN West, taking over the stretch from Hong Kong.

The latest transaction by Dr Peng Telecom Media Group could make that easier and make it easier to win FCC approval, by removing a major Chinese investor from the cable, to be replaced with a Canadian stakeholder.

Meister United is described in a filing to the Shanghai stock exchange as acting for Fit Ventures, “a family wealth management institution” based in Montréal.

Fit Ventures’ own website says it “oversees and manages a variety of investments focusing on private equity, real estate and public equities”. However, it does not give details of individual investments.

According to the Shanghai filing, Meister was established in August 2021. “Except for this transaction, there is no other business and foreign investment,” which seems to imply it is a special purpose vehicle for the PLCN stake.

The filing says that Fit Ventures has invested $3 billion since 2018, in more than 50 investments from $10 million to $500 million.

Dr Peng says that, following the sale, “the company no longer holds a stake in PLDC”.

PLDC is a separate company, responsible for “the main body of the construction and implementation of the PLCN submarine cable project, and its assets are only the PLCN submarine cable project under construction”.

However, there are hurdles to be overcome before the deal is complete, says the filing. More than 95% of PLDC’s equity has been pledged to Haitong International, a stock brokerage firm and investment bank based in Hong Kong, and Dr Peng has pledged $243 million of receivables from PLDC to US dollar bondholders.

According to the Shanghai filing, “the purpose of this transfer of 100% of PLDC’s equity is to dispose of the company’s loss-making assets, optimize the company’s resource allocation, [and] increase quick return of funds. This equity transfer is in line with the company’s development strategy and actual needs.”

Dr Peng Telecom Media Group has not updated its site to reflect the intended sale. It describes the PLCN as “the first direct undersea cable network between Hong Kong and Los Angeles”, with a total length of 12,800km. It is due to bypass “high seismic areas near Taiwan and Japan in order to avoid risk of network interruptions”, and will carry 100Gbps per wavelength, carrying 240 wavelengths per fibre pair, giving total capacity of 144Tbps.

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