By Fiona Lau and Julie Zhu
HONG KONG (Reuters/IFR) - China Tower, the world's largest telecoms tower operator, has lined up $1.4 billion from 10 cornerstone investors for its Hong Kong IPO of up to $8.7 billion, in what would be the world's biggest listing in four years, people close to the deal said.
The Beijing-based mobile phone infrastructure firm has set an indicative price range of HK$1.26 to HK$1.58 ($0.16-$0.20) per share for the initial public offering (IPO), valuing itself at between $28 billion and $35 billion, the people told Reuters.
China Tower's deal is seen as a key test of the Hong Kong IPO market as investors consider several big deals at a delicate time for the city's stock market, with the benchmark Hang Seng Index down about 6 percent so far this year.
It also comes as China's economy has begun to lose growth momentum this year amid a government push to reduce debt and an escalating Sino-U.S. trade conflict.
Earlier this month smartphone maker Xiaomi priced its IPO at the bottom of its range in a $5.4 billion deal while online on-demand services operator Meituan Dianping is expected to raise more than $4 billion when it floats in the coming months.
Chinese investment firm Hillhouse Capital Group made the biggest commitment of $400 million, followed by U.S. fund firm Och-Ziff Capital Management, which is pledging $300 million, the sources said.
Other cornerstones include a unit of Alibaba Group, China National Petroleum Corporation's CNPC Capital, and two U.S funds, Darsana Master Fund and Invus Public Equities.
Cornerstone investors usually buy significant chunks of an IPO with a certain lock-up period. The practice is common in several Asian markets, including Hong Kong, and helps bolster demand for large deals.
China Tower, which operated 1.9 million tower sites and had 2.8 million tenants as of the end of June, plans to sell about 43.1 billion shares, or 25 percent of its enlarged share capital, according to the people. It will open books to institutional investors on Monday and price the deal on August 1.
China Tower, Hillhouse, Och-Ziff and Alibaba declined to comment. CNPC and Invus didn't immediately respond to a request for comment. Darsana couldn't immediately be reached for comment.
VALUATIONS
The top end of the price range - HK$1.58 - represents a multiple of nearly 8 times adjusted earnings before interest, tax, depreciation and amortization (EBITDA) for 2018 and 7.3 times its 2019 EBITDA, as forecast by its underwriting syndicate.
U.S.-listed American Tower and Crown Castle International, and India's Bharti Infratel are trading at 18.8 times, 19 times and 7.5 times EBITDA, respectively, for the next 12 months, according to Thomson Reuters data.
At $8.7 billion, China Tower's IPO will surpass the $7.6 billion Hong Kong float of Postal Savings Bank of China in 2016, becoming the world's largest IPO since Alibaba's $25 billion New York listing in 2014, and Hong Kong's biggest listing since insurer AIA Group's $20.5 billion IPO in 2010.
If a 15 percent "greenshoe", or over-allotment, option is exercised, that would bring the deal size to about $10 billion.
China Tower was formed in 2014 from the tower operations of China's three state-backed telecoms providers - China Mobile Company, China Telecom and China Unicom Corporation - in a bid to streamline operations and reduce duplication.
The company plans to use 60 percent of the proceeds for capital expenditure, 30 percent for loans repayment and 10 percent for general working capital.
China International Capital Corp (CICC) and Goldman Sachs Group Inc are joint sponsors for the IPO.
($1 = 7.8494 Hong Kong dollars)
(Reporting by Fiona Lau of IFR and Julie Zhu; Editing by Jennifer Hughes and Muralikumar Anantharaman)
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