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TPG and Macquarie: Hang up, wrong numbers

Recent events surrounding the future ownership of Hong Kong fixed-line carrier PCCW [see Hong Kong: Wrong connections] offer evidence that Asia’s private equity market might be overheating. The zeal with which Texas Pacific Group and Macquarie have pursued an acquisition of the key assets of the group suggests that they might be struggling to find suitable investments in the region.

As much as $100 billion of capital, on a fully leveraged basis, is believed to be seeking a home in the region. Putting that kind of money to work in investments that will produce the kinds of returns limited partners have come to expect will be a very tall order. It is hard to see how TPG and Macquarie are going to further that cause with an investment in PCCW’s assets.

PCCW, the dominant fixed-line telecommunications operator in Hong Kong, one of the world’s most deregulated and saturated markets, also owns a cellular licence in the territory, operating in a ruthlessly competitive industry in dire need of further consolidation. In its fixed-line business, PCCW is losing market share to low-cost carriers and VoIP operators; the cellular market is completely saturated. True, PCCW has built a leading presence in business broadband services, including its NOW television offering, but it is already experiencing competitive pressures in these sectors too and the market is ultimately limited in size.

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