Telstra shares are trading at near eight-year highs after it announced the sale of its 76.4 per stake Hong Kong mobile business CSL to Hong Kong Telecommunications for $2 billion.
The company’s shares closed up 0.9 per cent at $5.20, just off the eight-year high reached in October this year of $5.23. Telstra shares have risen 18 per cent this year.
HKT will also acquire the remaining 23.6 per cent holding from New World Development, making the deal worth $2.74 billion.
Telstra chief financial officer Andy Penn would not comment on whether the proceeds would be used to return cash to investors or fuel further acquisitions in Asia until after the transaction was complete.
“We’d need to take into account the market dynamics, our franking situation and the various different options that are available to us, including organic investment as well as inorganic investment,” Mr Penn said.
But Telstra was keeping all options open, he said.
Regulatory approval is expected to take around 90 days, with Telstra anticipating the deal to be finalised by the first quarter of 2014.
“We’re not emotionally driven just to do deals,” said Telstra chief executive David Thodey.
“We’re always very disciplined around our capital management framework. If we can realise more value by making a sale that’s what we’ll do, versus just continuing on in the market for the sake of it,” said Mr Thodey.
The CSL assets were acquired by Telstra between 2001 and 2002 for the equivalent of around $4 billion, factoring in currency rates at the time. It later wrote down the value of the assets.
Pacific Century CyberWorks (PCCW), which originally sold Telstra the CSL assets, is the holding company for HKT, which is now buying them back at a discount to what it sold them for over 10 years ago.
CSL’s compound annual revenue growth rate was 9.4 per cent over the last three years, said Mr Thodey.
The company made up the majority of Telstra’s international revenu in the 2013 financial year, at $1.01 billion, and grew its customer base by 12.3 per cent. The $2 billion price tag marks a 9.5x valuation on earnings of $249 million in 2013.
The sale of CSL marks Telstra’s final exit from all mobile operations outside of Australia. It sold its New Zealand business, TelstraClear, to Vodafone New Zealand last year for $660 million.
Mr Thodey told investors earlier this year that CSL was a strategic investment for any potential move to establish a mobile business in greater China. But he said Friday that the exit from CSL would not endanger any plans for the lucrative market.
Earlier this year, China began a two-year pilot program allowing foreign companies to resell access to its state-owned mobile networks but currently caps foreign ownership at 10 per cent.
It would allow Telstra to enter the market early next year, according to analyst firm CIMB.
“We’ve made a judgement at the moment that it’s not critical to have a property in Hong Kong to participate in being a foreign [mobile reseller] in China, should we like to do that,” Mr Thodey said.
Telstra has targeted Asia as an important growth area and Mr Thodey said the company remained committed to pursuing further revenue streams in the region.
“We want to leverage out domestic strengths to grow our global footprint. The team is focused on refining and enhancing our strategy across Asia and identifying further opportunities to build our capability in the region.”
Telstra has continued to diversify internationally in recent years, including the recent lifting of its share in Chinese car sales website Autohome, which floated on the New York Stock Exchange in December at a $3 billion valuation.
Unlike the sale of CSL, Telstra retained a 66.2 per cent share in Autohome, with Mr Penn saying the listing was part of a long-term strategy for the business.
In the last 18 months, Telstra has opened nine new international operations.
In September this year, Telstra announced it would shed 1100 jobs, or 3 per cent of its Australian workforce by June 2014.