Bain Capital and Carlyle Group are among the private equity firms through to the next round of bidding for a stake in the telecom unit being spun out of Hong Kong's PCCW. A deal, expected to come late this year, could fetch $2.5 billion. While Bain is being advised by Morgan Stanley, Deutsche Bank is advising Carlyle. UBS is conducting the auction.

PCCW, Hong Kong's former monopoly fixed-line carrier, said in May it planned to fold its core media and telecoms businesses into a separate firm called HKT and sell 45 per cent of the new company. At the time, PCCW shares had dropped 90 per cent since 2000. (See: Hong Kong's PCCW seeks to sell 45 per cent stake in HKT Group for $2.5 billion)

Reportedly, other buyout firms that made it past the first round are: South Korea's MBK Partners, advised by Lehman Brothers, TPG, advised by JPMorgan, Providence Equity Partners, advised by Citigroup, and Australia's Macquarie Group, advising itself.

HKT will consist of three PCCW businesses: information technology, telecommunications, and media. PCCW hopes to spin off HKT into a publicly traded division. PCCW's broadband TV arm, called nowTV, is the world's largest provider of IPTV. The company also controls a property unit.

Although the auction has garnered a lot of interest, completing and profiting from a deal is considered difficult. Private equity firms will be limited in how much money they can borrow to purchase the stake, a factor likely to pinch their potential investment returns from the deal.

In addition, any deal involves coming to an agreement with a complex mix of characters, including the Chinese government and PCCW chairman Richard Li, the younger son of Hong Kong's richest man, Li Ka-shing, owner of Hutchison Whampoa.

Although a lack of access to debt financing has made it harder for private equity bidders to get into auctions in the US and Europe, buyout shops face significantly less headwind in Asia where the debt markets have not seized up.