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By Freya Berry and Arno Schuetze
BERLIN, Feb 26 (Reuters) - European investment fund StarCapital is launching preparations to sell German cable groupPepcom and a separate deal to dispose of a stake in Eleclink, acompany running a power cable connecting Britain and France, twopeople familiar with the matter told Reuters.
Star Capital has asked HSBC, which is leading arefinancing of Pepcom, to explore options for the company, thesources said on Thursday.
A bank is to be appointed soon for Eleclink, one of thepeople said.
Star Capital is also considering raising a fund of around800 million euros ($900 million) in response to demand frominvestors, the person added, declining to be identified sincethe matter is private.
Star Capital and HSBC declined to comment. Pepcom was notimmediately available to comment.
Pepcom is one of Germany's largest cable companies. A saleof the business following the refinancing is likely to takeplace in the next 12-18 months, the sources said, cautioningthat no deal was certain.
Pepcom's debt is equal to its core earnings (EBITDA), one ofthe people said, adding most rivals have debts of at least 3-4times their earnings.
"There is definitely room for a dividend recapitalisation,"the person added.
Pepcom has core earnings of 64 million euros. If the firmreaps a similar valuation as listed peer Tele Columbus, which trades at 10 times its core earnings, it may bevalued at more than 600 million euros.
While Star Capital could market the asset to rival investorswith a penchant for cable -- like Carlyle, BC Partners, CVC or Cinven -- it is alsoexpected to discuss it with German cable operators.
"The antitrust authorities have started to take a differentstance, so one should not rule out the possibility that they mayallow a deal with Deutsche Telekom, Vodafone's KabelDeutschland , Unitymedia or TeleColumbus," the person said.
"In Germany it certainly makes sense to create biggerunits."
In the case of Eleclink, Star is targeting a trade buyer,the first source said, although the timeline for a deal is notyet certain.
Work is ongoing for Eleclink, a joint venture between StarCapital and Eurotunnel set up in May 2011 with the aim ofdeveloping a 1000 megawatt electricity interconnector betweenFrance and Britain.
Star would be looking to sell its 51 percent stake in theproject, the source said. The companies said in 2011 that theinvestment would be around 250 million euros, althoughconstruction costs are currently closer to 500 million euros,the person added. ($1 = 0.8847 Euros)
($1 = 0.8847 Euros) (Reporting By Freya Berry and Arno Schuetze; editing by JasonNeely and Keith Weir)
HSBC Holdings (HSBA)
Vodafone (VOD)
