Hong Kong tycoon Li Ka-shing
Hong Kong tycoon Li Ka-shing

Li Ka-shing has won backing from the sovereign wealth funds of Singapore and Abu Dhabi for his £10.3bn purchase of Britain’s O2 — a deal that if approved will see the Hong Kong billionaire’s Hutchison Whampoa become the UK’s largest mobile operator.

In total, investors will pay £3.1bn for a 32.98 per cent stake. Singapore’s GIC and the Canada Pension Plan will each chip in £1.1bn, with the remaining £900m coming from the Abu Dhabi Investment Authority, Quebec pension fund CDPQ and BTG Pactual, the Brazilian banking group.

The deal to buy 02 from Spain’s Telefónica was agreed in March and stands to transform the UK mobile market. It will catapult Hutchison’s Three from the market’s smallest player to its biggest and shrink the field from four to three.

The deal with the five institutions will give the combined group an enterprise value of £15.4bn, with about £6bn in debt also being raised by Hutchison to help fund the deal.

The group has discussed potential exit strategies for its investors should they wish to realise any returns in the next five years, according to one person with knowledge of the situation.

These include a potential flotation of the British business, or a more formal combination with Hutchison’s other businesses in Europe.

The move is a bold one for Mr Li as he pursues plans to build a pan-European mobile network — it is all the more ambitious given that Three took about eight years to turn a profit after burning through billions of pounds on capital expenditure.

The acquisition also comes as the octogenarian Mr Li restructures his sprawling business empire in preparation to hand over to the next generation. The restructuring is expected to be completed by June.

The O2 deal, first announced in January, needs approval from the European Commission. With some other European countries having shrunk to three operators, Brussels is expected to approve the merger, albeit with conditions. The process is expected to take about a year.

Three and O2 combined would have 33m customers, or about 40 per cent of the UK mobile market.

Hutchison is buying O2 from Telefónica for £9.3bn, with other payments worth up to £1bn contingent on conditions being met. The outside investors will put up an initial £2.8bn, with a further £330m if required.

Hutchison’s initial £5.6bn holding in O2 — a two-thirds stake — will comprise £280m in cash and the injection of its existing Three UK business.

Hutchison Whampoa shares were 1.7 per cent higher at HK$111.5 in early Friday trading, outperforming the blue-chip Hang Seng index, which was up 0.7 per cent.

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